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, 1999
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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 10, 2000, the Registrant had 6,789,358 shares of common stock
outstanding with a no par value. Based on the closing bid price of $17.50 on
the same date, the aggregate market value of the voting stock held by
nonaffiliates of the Registrant was $118,813,765.
Portions of the 1999 Annual Report to Shareholders are incorporated by reference
in Parts I, II, and III hereof.
Portions of the 2000 Proxy Statement for the Annual Shareholders' Meeting to be
held on April 27, 2000 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 fifteen banking offices and one trust
services office serving Snyder, Union, Northumberland, Lycoming, Cameron, and
Elk Counties. At December 31, 1999, Sun Bank had total assets of $708,461,000
and total shareholders' equity of $53,915,000. Net income for 1999 was
$8,447,000.
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, 34 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, 1999, Pennsylvania SUN Life had total
assets of $776,000 and total shareholders' equity of $394,000. Net income for
1999 was $85,000.
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, 1999, the Bank employed 229 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), and South Williamsport (Item 18), 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 1999, a financial services center was constructed in
Williamsport (Item 19) and the South Williamsport office (Item 18) was opened.
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 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. Montoursville 301 Broad Street Brick structure
Montoursville, PA 17754
17. Squire Hays 3155 Lycoming Creek Road Stone and frame
Williamsport, PA 17701 structure
18. South Williamsport 2 East Mountain Ave. Brick structure
S. Williamsport, PA 17702
19. Maynard Street 90 Maynard 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 10, 2000, SUN had
approximately 2,105 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 43 of the 1999 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 1999 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 42 of the 1999 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 1999 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 1999 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 2000 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 2000 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 2000 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 2000 Proxy
Statement.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is incorporated by reference to footnote 15 on page 19 of
the 1999 Annual Report to Shareholders and under the heading of Transactions
with Management on page 19 of the 2000 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, 1999 are
incorporated by reference in Part II, Item 8:
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Income - Years Ended December 31, 1999,
1998, and 1997
Consolidated Statements of Changes in Shareholders' Equity - Years
Ended December 31, 1999, 1998, and 1997
<PAGE>
Consolidated Statements of Cash Flows - Years Ended December 31, 1999,
1998, and 1997
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, 1999 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 2000 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 1999.
(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
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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: 3/23/00 By: /s/ Fred W. Kelly, Jr.
--------------- -----------------------------------
Fred W. Kelly, Jr.
President & Chief Executive Officer
Date: 3/23/00 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. 3/23/00
Fred W. Kelly, Jr.
President, Chief Executive Officer and Director
/s/ Jeffrey E. Hoyt 3/23/00
Jeffrey E. Hoyt
Executive Vice President, Secretary and
Chief Operating Officer
/s/ Max E. Bingaman 3/23/00
Max E. Bingaman, Director
/s/ David R. Dieck 3/23/00
David R. Dieck, Director
/s/ Louis A. Eaton 3/23/00
Louis A. Eaton, Director
/s/ Dr. Robert E. Funk 3/23/00
Dr. Robert E. Funk, Director
/s/ Stephen J. Gurgovits 3/23/00
Stephen J. Gurgovits, Director
/s/ Thomas B. Hebble 3/23/00
Thomas B. Hebble, Director
/s/ Robert A. Hormell 3/23/00
Robert A. Hormell, Director
/s/ Paul R. John 3/23/00
Paul R. John, Director
/s/ George F. Keller 3/23/00
George F. Keller, Director
/s/ Lehman B. Mengel 3/23/00
Lehman B. Mengel, Director
/s/ Howard H. Schnure 3/23/00
Howard H. Schnure, Director
/s/ Marlin T. Sierer 3/23/00
Marlin T. Sierer, Director
/s/ Jerry A. Soper 3/23/00
Jerry A. Soper, Director
/s/ Dennis J. Van 3/23/00
Dennis J. Van, Director
<PAGE>
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
(In Thousands, Except Share Data) 1999 1998
<TABLE>
<CAPTION>
--------- ---------
<S> <C> <C>
ASSETS
Cash and due from banks $ 15,079 $ 13,350
Interest-bearing deposits in banks 980 880
--------- ---------
Total cash and cash equivalents 16,059 14,230
Securities available for sale 282,616 254,780
Loans, net 377,485 326,928
Bank premises and equipment, net 10,542 9,139
Intangible asset, goodwill - net 9,436 10,191
Accrued interest and other assets 14,783 8,309
--------- ---------
Total assets $710,921 $623,577
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 37,783 $ 36,429
Interest-bearing 362,338 327,457
--------- ---------
Total deposits 400,121 363,886
Short-term borrowings 35,966 25,750
Other borrowed funds 214,000 161,500
Accrued interest and other liabilities 4,821 4,640
--------- ---------
Total liabilities 654,908 555,776
--------- ---------
Shareholders' equity:
Common stock, no par value per share; 20,000,000
authorized shares; issued 6,985,680 in 1999 and
6,627,139 in 1998 81,520 72,913
Retained earnings (deficit) (10,498) (4,949)
Accumulated other comprehensive income (loss) (10,667) 2,016
Less: Treasury stock at cost, 192,844 shares in
1999 and 97,263 shares in 1998 (4,342) (2,179)
--------- ---------
Total shareholders' equity 56,013 67,801
--------- ---------
Total liabilities and shareholders' equity $710,921 $623,577
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
(In Thousands, Except Net Income Per Share) 1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $29,841 $28,826 $24,312
Income from available for sale securities:
Taxable 14,642 9,870 5,701
Tax exempt 1,818 2,685 2,669
Dividends 997 679 700
Interest on deposits in banks and
other financial institutions 156 617 271
------- ------- -------
Total interest and dividend income 47,454 42,677 33,653
Interest expense:
Interest on deposits 14,880 13,905 10,180
Interest on short-term borrowings 843 707 907
Interest on other borrowed funds 10,507 7,855 5,532
------- ------- -------
Total interest expense 26,230 22,467 16,619
------- ------- -------
Net interest income 21,224 20,210 17,034
Provision for possible loan losses 1,925 1,200 1,175
------- ------- -------
Net interest income after provision
for possible loan losses 19,299 19,010 15,859
------- ------- -------
Other operating income:
Service charges on deposit accounts 1,213 1,151 936
Trust income 722 617 432
Net securities gains 1,962 1,403 1,779
Income from insurance subsidiary 223 170 151
Other income 840 749 527
------- ------- -------
Total other operating income 4,960 4,090 3,825
------- ------- -------
Other operating expenses:
Salaries and employee benefits 6,204 5,686 4,783
Net occupancy expenses 653 709 570
Furniture and equipment expenses 1,038 872 648
Pennsylvania shares tax 553 485 380
Amortization of goodwill 755 755 378
Expenses of insurance subsidiary 129 186 163
Other expenses 2,747 2,602 2,451
------- ------- -------
Total other operating expenses 12,079 11,295 9,373
------- ------- -------
Income before income tax provision 12,180 11,805 10,311
Income tax provision 3,425 3,079 2,510
------- ------- -------
Net income $ 8,755 $ 8,726 $ 7,801
======= ======= =======
Net income per share - Basic $ 1.28 $ 1.27 $ 1.23
======= ======= =======
Net income per share - Diluted $ 1.28 $ 1.26 $ 1.22
======= ======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years Ended December 31, 1999, 1998, and 1997
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Retained Other Total
--------------- Paid-in Earnings Comprehensive Treasury Shareholders'
Shares Amount Capital (Deficit) Income (Loss) Stock Equity
------ ------- ---------- --------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
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 565 707 19,356 - - - 20,063
Stock split, three-for-two 2,090 - - - - - -
Cash dividends declared,
$.65 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,
$.78 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
--------
Comprehensive income:
Net income - - - 8,755 - - 8,755
Unrealized losses on securities
available for sale, net of
reclassification adjustments
and tax effects - - - - (12,683) - (12,683)
--------
Total comprehensive loss (3,928)
--------
Stock issued:
Stock dividends 332 8,169 - (8,169) - - -
Employee benefit plans 27 398 - - - - 398
Purchase of treasury stock
(87,932 shares) - - - - - (2,163) (2,163)
Cash dividends declared,
$.90 per share - - - (6,135) - - (6,135)
Tax benefit of exercised
stock options - 40 - - - - 40
----- ------- -------- --------- --------- -------- --------
Balance, December 31, 1999 6,986 $81,520 $ - $(10,498) $(10,667) $(4,342) $56,013
===== ======= ======== ========= ========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
(In Thousands) 1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 8,755 $ 8,726 $ 7,801
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses 1,925 1,200 1,175
Provision for depreciation 715 683 607
Amortization of goodwill 755 755 378
Amortization and accretion of securities, net 253 356 211
Deferred income tax 2 254 316
Net securities gains (1,962) (1,403) (1,779)
Gain on sale of bank premises and equipment - - (83)
Net change in other assets and liabilities 1,142 689 (463)
--------- --------- --------
Net cash provided by operating activities 11,585 11,260 8,163
--------- --------- --------
Cash flows from investing activities:
Proceeds from sales of available for sale securities 37,104 48,194 26,386
Proceeds from maturities of available for sale securities 29,497 53,587 18,281
Purchases of available for sale securities (111,945) (191,987) (52,266)
Net increase in loans (53,345) (20,247) (382)
Proceeds from sales of bank premises and equipment - - 266
Capital expenditures (2,118) (858) (1,330)
--------- --------- --------
Net cash used in investing activities (100,807) (111,311) (9,045)
--------- --------- --------
Cash flows from financing activities:
Net increase in deposits 36,235 36,868 7,365
Net increase (decrease) in short-term borrowings 10,216 5,491 (16,664)
Proceeds from other borrowed funds 75,000 80,000 55,000
Repayments of other borrowed funds (22,500) (11,525) (45,681)
Cash dividends paid (6,135) (5,369) (4,217)
Proceeds from sale of stock for employee benefits program 398 627 596
Purchase of treasury stock (2,163) (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 91,051 105,322 2,342
--------- --------- --------
Net increase in cash and cash equivalents 1,829 5,271 1,460
Cash and cash equivalents at beginning of year 14,230 8,959 7,499
--------- --------- --------
Cash and cash equivalents at end of year $ 16,059 $ 14,230 $ 8,959
========= ========= ========
Supplemental disclosure of cash flow information:
Interest paid $ 25,769 $ 21,706 $16,131
========= ========= ========
Income taxes paid $ 3,550 $ 2,360 $ 2,030
========= ========= ========
Supplemental schedule of noncash investing and financing activities:
- Loans with an estimated value of $864,000 in 1999 and $224,000 in 1998, were
reclassified to foreclosed assets held for sale.
- The tax benefit of exercised stock options of $40,000 in 1999 and $134,000 in
1998, was credited to common stock.
- On June 30, 1997, SUN acquired all of the capital stock of Bucktail 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
=========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 fifteen 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 deposit. 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
affecting 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 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 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 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 (loss) 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.
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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Loan Servicing
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balance of mortgages serviced
for others was $30,645,000 at December 31, 1999. The balance of capitalized
mortgage servicing rights included with accrued interest and other assets in the
consolidated balance sheet was approximately $50,000 at December 31, 1999.
Mortgage servicing rights are recorded at their fair value and are amortized
over the period of estimated net servicing income or loss. SUN uses a valuation
model calculating the present value of future cash flows to determine the fair
value of servicing rights. This valuation model incorporates assumptions market
participants would use in estimating future net servicing income including loan
types and interest rates, and estimates of the cost of servicing the loan,
discount rate, and prepayment speeds. The value of the mortgage servicing
rights is periodically evaluated for impairment using the same market
assumptions.
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 adequate amount 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 $533,000 at
December 31, 1999 and $273,000 at December 31, 1998.
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 in
1999 and 1998 and $378,000 in 1997. 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, 1999.
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 1999, 1998, and 1997 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
----------- ----------- ----------
1999
- ----
<S> <C> <C> <C>
Net income per share - Basic $8,755,000 6,813,956 $1.28
=====
Dilutive effect of potential common stock
arising from stock options:
Exercise of options outstanding 238,137
Hypothetical share repurchase at $23.41 (191,979)
---------- ----------
Net income per share - Diluted $8,755,000 6,860,114 $1.28
========== ========== =====
1998
- ----
Net income per share - Basic $8,726,000 6,856,955 $1.27
=====
Dilutive effect of potential common stock
arising from stock options:
Exercise of options outstanding 246,817
Hypothetical share repurchase at $26.43 (180,406)
---------- ----------
Net income per share - Diluted $8,726,000 6,923,366 $1.26
========== ========== =====
1997
- ----
Net income per share - Basic $7,801,000 6,348,379 $1.23
=====
Dilutive effect of potential common stock
arising from stock options:
Exercise of options outstanding 267,330
Hypothetical share repurchase at $22.19 (200,113)
---------- ----------
Net income per share - Diluted $7,801,000 6,415,596 $1.22
========== ========== =====
</TABLE>
3. Comprehensive Income (Loss)
Accounting principles generally require that 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 (loss). The components of other comprehensive income
(loss) and related tax effects are as follows:
<TABLE>
<CAPTION>
(In Thousands) Years Ended December 31
-------------------------------
1999 1998 1997
--------- -------- -------
<S> <C> <C> <C>
Unrealized holding gains (losses) on
available for sale securities $(17,255) $ (355) $5,573
Less: Reclassification adjustment for
gains realized in income (1,962) (1,403) (1,779)
--------- -------- -------
Net unrealized gains (losses) (19,217) (1,758) 3,794
Income tax benefit (expense) 6,534 598 (1,290)
--------- -------- -------
Net $(12,683) $(1,160) $2,504
========= ======== =======
</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 was accounted for as a purchase, resulted in the issuance of
935,004 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 (FRB) primarily based on its deposit
liabilities. The average of such reserves was $531,000 in 1999, $4,459,000 in
1998, and $1,924,000 in 1997. In 1999, SUN acquired software which analyzes
account activity. Based on this analysis, a reclassification of transaction
accounts to non-transaction accounts occurred. This reclassification reduced the
required reserve amount for 1999 at FRB. These reserves were $594,000 at
December 31, 1999 and $5,038,000 at December 31, 1998.
Deposits with any one financial institution are insured up to $100,000. SUN
maintains 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,
1999 and 1998 were as follows:
<TABLE>
<CAPTION>
(In Thousands) December 31, 1999
----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Debt securities:
Obligations of U.S. government agencies $256,605 $ 9 $(13,662) $242,952
Obligations of states and political subdivisions 21,049 117 (650) 20,516
Other corporate 500 - - 500
-------- ---- --------- --------
Total debt securities 278,154 126 (14,312) 263,968
-------- ---- --------- --------
Equity securities:
Marketable equity securities 8,398 5 (1,980) 6,423
Restricted equity securities 12,225 - - 12,225
-------- ---- --------- --------
Total equity securities 20,623 5 (1,980) 18,648
-------- ---- --------- --------
Total $298,777 $131 $(16,292) $282,616
======== ==== ========= ========
</TABLE>
<TABLE>
<CAPTION>
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
======== ======= ====== ========
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amortized cost and estimated fair value of SUN's securities at
December 31, 1999 and 1998, 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, 1999 December 31, 1998
-------------------- -------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Debt securities:
Due in one year or less $ 15 $ 15 $ 579 $ 597
Due after one year through five years 60 60 14,749 15,472
Due after five years through ten years 40,008 37,474 23,532 23,575
Due after ten years 21,459 20,926 29,983 31,034
Mortgage-backed securities 216,612 205,493 164,948 165,247
-------- -------- -------- --------
Total debt securities 278,154 263,968 233,791 235,925
Equity securities 20,623 18,648 17,933 18,855
-------- -------- -------- --------
Total $298,777 $282,616 $251,724 $254,780
======== ======== ======== ========
</TABLE>
Securities with a carrying value of $263,000,000 at December 31, 1999 and
$171,000,000 at December 31, 1998 were pledged to secure public deposits, trust
deposits, securities sold under agreements to repurchase, FHLB borrowings, and
other items required by law. There is no concentration of investments exceeding
10% of shareholders' equity for any individual issuer, excluding those
guaranteed by the U.S. government or its agencies.
In 1999, gross realized gains from the sale of available for sale securities
were $1,967,000, while gross realized losses were $5,000. In 1998, gross
realized gains were $1,550,000, while gross realized losses were $147,000. In
1997, gross realized gains were $1,942,000, while gross realized losses were
$163,000.
7. Loans
The composition of the loan portfolio at December 31, 1999 and 1998 was as
follows:
<TABLE>
<CAPTION>
(In Thousands) December 31
---------------------
1999 1998
--------- ---------
<S> <C> <C>
Real estate - Mortgages $178,876 $192,592
Real estate - Construction 3,318 3,353
Agricultural 1,059 971
Commercial and industrial 114,193 52,823
Individual 85,255 83,343
Other 104 383
--------- ---------
Total 382,805 333,465
Less: Unearned income on loans (740) (1,666)
Unamortized net discount on
purchased loans (508) (1,270)
Deferred loan fees (215) (274)
Allowance for possible loan losses (3,857) (3,327)
--------- ---------
Net $377,485 $326,928
========= =========
</TABLE>
Transactions in the allowance for possible loan losses were as follows:
<TABLE>
<CAPTION>
Years Ended December 31
-------------------------------
(In Thousands) 1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Balance, beginning of year $3,327 $3,130 $2,490
Provision for possible loan losses 1,925 1,200 1,175
Allowance for possible loan losses assumed upon
acquisition of Bucktail - - 1,292
Recoveries 211 248 175
Loans charged off (1,606) (1,251) (2,002)
------- ------- -------
Balance, end of year $3,857 $3,327 $3,130
======= ======= =======
</TABLE>
<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, 1999
and 1998, SUN had loans to automobile dealers of $14,329,000 and $9,253,000,
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 this
industry. 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 were $2,285,000 at December 31, 1999 and
$922,000 at December 31, 1998. Interest income which would have been recognized
on all nonaccrual and restructured loans outstanding was approximately $200,000
in 1999, $82,000 in 1998 and $147,000 in 1997.
The following is a summary of the past due and nonaccrual loans as of
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
(In Thousands) Past Due
Past Due 90 Days
December 31, 1999 30-89 Days or More Nonaccrual
- ----------------- ---------- -------- ----------
<S> <C> <C> <C>
Real estate $2,466 $ 501 $1,506
Individual 2,128 324 94
Commercial and all other 360 190 365
------ ------ ------
Total $4,954 $1,015 $1,965
====== ====== ======
December 31, 1998
- -----------------
Real estate $4,985 $2,071 $ 486
Individual 3,165 535 7
Commercial and all other 396 261 142
------ ------ ------
Total $8,546 $2,867 $ 635
====== ====== ======
</TABLE>
SUN had loans amounting to $2,517,000 at December 31, 1999 and $2,523,000 at
December 31, 1998, specifically classified as impaired. The average balance of
impaired loans was $3,288,000 in 1999, $3,661,000 in 1998, and $4,277,000 in
1997. The allowance for loan losses related to impaired loans was $459,000 at
December 31, 1999 and $277,000 at December 31, 1998.
The following is a summary of cash receipts on these loans during the period
they were classified as impaired in 1999, 1998, and 1997:
<TABLE>
<CAPTION>
(In Thousands) 1999 1998 1997
------ ------ ----
<S> <C> <C> <C>
Cash receipts applied to reduce principal balance $1,374 $1,959 $212
Cash receipts recognized as interest income 253 496 267
------ ------ ----
Total $1,627 $2,455 $479
====== ====== ====
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Bank Premises and Equipment
Bank premises and equipment at December 31, 1999 and 1998 consisted of the
following:
<TABLE>
<CAPTION>
(In Thousands) December 31
------------------
1999 1998
-------- --------
<S> <C> <C>
Land $ 1,542 $ 1,542
Bank premises 9,281 7,739
Furniture and equipment 4,967 4,391
-------- --------
Total cost 15,790 13,672
Less: Accumulated depreciation (5,248) (4,533)
-------- --------
Bank premises and equipment, net $10,542 $ 9,139
======== ========
</TABLE>
Depreciation expense was $715,000 in 1999, $683,000 in 1998, and $607,000 in
1997.
9. Deposits
The following table reflects certificates of deposit and other time deposits
and their remaining maturities as of December 31, 1999:
<TABLE>
<CAPTION.
(In Thousands)
Year Ending December 31:
- ------------------------
<S> <C>
2000 $162,853
2001 27,506
2002 5,836
2003 2,739
2004 1,620
Thereafter 54
--------
Total $200,608
========
</TABLE>
Included in interest-bearing deposits are certificates of deposit and other
time deposits issued in amounts of $100,000 or more. These deposits and their
remaining maturities, as of December 31, 1999, are as follows:
(In Thousands)
<TABLE>
<CAPTION>
<S> <C>
Three months or less $15,322
Three through six months 6,649
Six through twelve months 8,867
Over twelve months 4,420
-------
Total $35,258
=======
</TABLE>
Interest on deposits of $100,000 or more amounted to approximately $2,001,000
in 1999, $1,842,000 in 1998, and $1,309,000 in 1997.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Borrowed Funds
At December 31, 1999, SUN had a maximum borrowing capacity of $250,735,000 at
FHLB with $15,310,000 in unused funds. At December 31, 1998, SUN's maximum
borrowing capacity was $224,132,000 at FHLB with $38,401,000 in unused funds.
SUN also maintains a line of credit with Allfirst Bank of $5,000,000, which has
never been used.
SUN's borrowed funds as of December 31, 1999 and 1998 included the following:
<TABLE>
<CAPTION>
(In Thousands) December 31
-------------------
1999 1998
-------- --------
<S> <C> <C>
Short-term Borrowings:
Open Repo Plus (1) $ 21,425 $ 11,599
Securities sold under agreements to repurchase (2) 14,516 13,628
Treasury Tax and Loan Note Option (3) 25 523
-------- --------
Total Short-term Borrowings 35,966 25,750
Other Borrowed Funds,
Federal Home Loan
Bank of Pittsburgh advances (4) 214,000 161,500
-------- --------
Total Borrowed Funds $249,966 $187,250
======== ========
</TABLE>
(1) SUN utilizes an "Open Repo Plus" program through the FHLB as an overnight
source of funds. As of December 31, 1999, the total commitment was
$50,000,000. The maximum month end amount of such borrowings was
$22,161,000 in 1999, $11,605,000 in 1998, and $19,836,000 in 1997. The
daily average amount of such borrowings was $8,034,000 in 1999, $1,365,000
in 1998, and $6,017,000 in 1997, and the weighted average interest rate was
5.30% in 1999, 5.37% in 1998, and 5.54% in 1997.
(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
was $15,332,000 in 1999, $20,190,000 in 1998, and $12,149,000 in 1997. The
average daily amount of such borrowings was $12,175,000 in 1999,
$13,611,000 in 1998, and $9,737,000 in 1997 and the weighted average
interest rates were 3.36% in 1999, 3.50% in 1998, and 3.89% in 1997.
(3) Borrowings on the Treasury Tax and Loan Note Option (TT&L) represent tax
funds deposited and held until the U.S. Treasury calls the balance. At
December 31, 1999, the maximum amount available to borrow through the Note
Options is $25,000. In February 1999, SUN reduced its TT&L Note Option
borrowing capacity to allow SUN to obtain a more efficient use of its
pledgeable assets. The maximum month end amount of such borrowings was
$3,663,000 in 1999 and $10,000,000 in 1998 and 1997. The average daily
amount of such borrowings was $199,000 in 1999, $3,030,000 in 1998, and
$3,925,000 in 1997, and the weighted average interest rates were 4.52% in
1999, 5.21% in 1998, and 4.96% in 1997.
(4) FHLB advances represent variable and fixed rate loans with stated maturities
as follows:
<TABLE>
<CAPTION>
(In Thousands) December 31
--------------------
1999 1998
-------- --------
<S> <C> <C>
Variable rate of 6.07% at December 31, 1999, maturity 2000 $ 25,000 $ -
Variable rates between 5.48% and 6.06%, at December 31, 1999, maturity 2001 10,000 20,000
Variable rates between 5.52% and 6.38%, at December 31, 1999, maturity 2002 55,000 55,000
Variable rates between 4.94% and 5.41%, at December 31, 1999, maturity 2008 70,000 80,000
Variable rates between 4.93% and 5.88%, at December 31, 1999, maturity 2009 50,000 -
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 rate of 5.15%, maturity 1999 - 2,500
-------- --------
Total $214,000 $161,500
======== ========
</TABLE>
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
reflecting 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:
<TABLE>
<CAPTION>
(In Thousands) December 31, 1999 December 31, 1998
-------------------- --------------------
Book Fair Book Fair
Value Value Value Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total loans $377,485 $374,772 $326,928 $330,992
======== ======== ======== ========
</TABLE>
Deposits:
The fair value of deposits with no stated maturity, such as noninterest-
bearing demand deposits, NOW accounts, savings deposits, and Insured Money
Market Accounts, is equal to the amount payable on demand as of December 31,
1999 and 1998. 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 resulting from the low-
cost funding provided by the deposit liabilities compared to the cost of
borrowing funds in the market, commonly referred to as the core deposit
intangible. The following table presents information for deposits:
<TABLE>
<CAPTION>
(In Thousands) December 31, 1999 December 31, 1998
-------------------- --------------------
Book Fair Book Fair
Value Value Value Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total deposits $400,121 $400,984 $363,886 $363,138
======== ======== ======== ========
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Borrowed funds:
Rates currently available to SUN for borrowed funds with similar terms and
remaining maturities are used to estimate the fair value of existing borrowed
funds.
<TABLE>
<CAPTION>
(In Thousands) December 31, 1999 December 31, 1998
-------------------- --------------------
Book Fair Book Fair
Value Value Value Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total borrowed funds $249,966 $244,986 $187,250 $185,210
======== ======== ======== ========
</TABLE>
Commitments to Extend Credit, Standby Letters of Credit and Financial Guarantees
Written:
There is no material difference between the notional amount and the estimated
fair value of off-balance sheet items which total $74,627,000 at December 31,
1999 and $65,406,000 at December 31, 1998, 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 1998 Stock
Incentive Plan, which is administered by a disinterested committee of the Board
of Directors, provides for 716,625 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 1998 Independent
Directors Stock Option Plan allows for 115,763 shares of common stock to be
issued to non-employee directors. Options under the 1998 Stock Incentive Plan
and the 1998 Independent Directors Stock Option Plan expire ten years after the
date of grant. Also, 248,063 shares have been allocated for the 1998 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 1998 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
1999, 1998, and 1997 would have been adjusted to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net income As reported $8,755,000 $8,726,000 $7,801,000
Pro forma 8,188,000 $8,313,000 $7,441,000
Earnings per share - Basic As reported $ 1.28 $ 1.27 $ 1.23
Pro forma 1.20 $ 1.21 $ 1.17
</TABLE>
For purposes of the pro forma calculations above, the fair value of each option
grant is estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions for grants issued in 1999,
1998, and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Dividend yield 3% 3% 3%
Volatility 24% 25% 24%
Risk-free interest rates:
Stock Incentive Plan 5.37% 5.57% 6.73%
Independent Directors Plan 5.18% 5.63% 6.80%
Expected option lives 4 years 4 years 4 years
</TABLE>
<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>
1999 1998 1997
------------------------ ------------------------ ------------------------
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 361,122 $23.82 294,960 $18.57 288,161 $14.29
Granted 124,943 23.82 131,870 33.05 96,352 22.97
Exercised (27,503) 14.49 (48,449) 12.96 (54,284) 12.82
Forfeited (22,204) 26.84 (17,259) 26.34 (35,269) 16.03
-------- ------ -------- ------ -------- ------
Outstanding, end of year 436,358 $23.25 361,122 $23.82 294,960 $18.57
======== ====== ======== ====== ======== ======
Options exercisable at year end 346,862 262,106 228,108
======== ======== ========
Fair value of options granted
during the year $4.19 $7.24 $4.97
====== ====== ======
</TABLE>
The following table summarizes information about fixed stock options
outstanding under the Stock Incentive Plan and the Independent Directors Plan at
December 31, 1999:
<TABLE>
<CAPTION>
Exercise Number Outstanding Remaining Number Exercisable
Prices at December 31, 1999 Contractual Life at December 31, 1999
-------- -------------------- ---------------- --------------------
<S> <C> <C> <C>
$9.57 298 5 years 298
$10.76 15,786 5 years 15,786
$11.22 2,469 6 years 2,469
$13.71 30,215 6 years 30,215
$16.24 6,330 7 years 6,330
$18.43 46,152 7 years 46,152
$19.19 9,053 8 years 9,053
$21.89 60,765 8 years 60,765
$32.11 11,522 9 years 11,522
$34.29 88,488 9 years 88,488
$22.28 11,018 10 years 11,018
$25.71 89,496 10 years -
------- --------- -------
371,592 8.4 years 282,096
======= ========= =======
</TABLE>
13. Employee Benefit Plans
SUN provides a defined contribution pension plan covering 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 were $327,000 in 1999,
$328,000 in 1998, and $263,000 in 1997. Additionally, the amount charged to
expense under the supplemental payment agreement was $37,000 in 1999, $35,000 in
1998, and $34,000 in 1997.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Income Taxes
The following temporary differences gave rise to a deferred tax asset at
December 31, 1999 and a deferred tax liability at December 31, 1998:
<TABLE>
<CAPTION>
(In Thousands) December 31
--------------------
1999 1998
------- --------
<S> <C> <C>
Deferred tax assets:
Loan losses $1,242 $ 992
Discount on loans acquired from Bucktail 254 432
Loan fees and costs 67 84
Premium on deposits assumed from Bucktail 26 43
Nonaccrual interest 68 28
Supplemental compensation plan 91 79
Unrealized losses on investment securities 5,495 -
Other 55 55
------ -------
Total 7,298 1,713
------ -------
Deferred tax liabilities:
Unrealized gains on investment securities - 1,039
Bank premises and equipment 855 749
Other 23 37
------ -------
Total 878 1,825
------ -------
Deferred tax asset (liability), net $6,420 $ (112)
====== =======
</TABLE>
SUN's income tax provision for 1999, 1998, and 1997 consists of the following:
<TABLE>
<CAPTION>
(In Thousands) Years Ended December 31
-------------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Current provision $3,383 $2,691 $2,194
Deferred income tax provision 2 254 316
Tax expense from allocation of stock option
tax benefits directly to equity 40 134 -
------ ------ ------
Income tax provision $3,425 $3,079 $2,510
====== ====== ======
</TABLE>
The following is a reconciliation between the actual income tax expense and
the amount of income taxes which would have been recognized at the federal
statutory rate:
<TABLE>
<CAPTION>
(In Thousands) Years Ended December 31
-------------------------------------------
1999 1998 1997
------------- ------------- -------------
Amount Rate Amount Rate Amount Rate
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Federal income tax at statutory rate $4,263 35.0% $4,132 35.0% $3,609 35.0%
Tax exempt income (838) (6.9) (1,017) (8.6) (1,016) (9.9)
Amortization of goodwill 264 2.2 264 2.2 132 1.3
Tax credits from limited partnerships (228) (1.9) (225) (1.9) (114) (1.1)
Other items (36) (.3) (75) (.6) (101) (1.0)
------- ----- ------- ----- ------- -----
Income tax provision $3,425 28.1% $3,079 26.1% $2,510 24.3%
======= ===== ======= ===== ======= =====
</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> <C>
9 Directors, 6 Executive Officers 1999 $ 7,167 $ 106 $(1,600) $ - $5,673
11 Directors, 6 Executive Officers 1998 8,844 1,708 (3,385) - 7,167
9 Directors, 6 Executive Officers 1997 10,323 559 (1,088) (950) 8,844
</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. Other changes are transfers
in and out of the related party category.
Deposit accounts of related parties were $3,886,000 at December 31, 1999,
$2,622,000 at December 31, 1998, and $2,666,000 at December 31, 1997.
<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, equipment, and income-producing
commercial properties. Commitments to extend credit totaled $72,091,000 at
December 31, 1999 and $63,225,000 at December 31, 1998.
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 terms of the
letters of credit vary 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 in extending loans to customers. SUN holds collateral
supporting those commitments for which collateral is deemed necessary. Standby
letters of credit totaled $2,536,000 at December 31, 1999 and $2,181,000 at
December 31, 1998.
17. Regulatory Matters
SUN (on a consolidated basis) and the Bank are 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 SUN's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, SUN and
the Bank must meet specific capital guidelines involving quantitative measures
of their assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. The 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 SUN and the Bank to maintain minimum amounts and ratios (set forth in
the table below for SUN) 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, 1999 and 1998, that SUN and the Bank meet all capital adequacy
requirements to which they are subject.
To be categorized as well capitalized, SUN must maintain minimum total risk-
based, Tier I risk-based, and 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
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
- ------------------------
Total Capital
(to Risk Weighted Assets) $59,792 16.1% $29,790 8.0% $37,238 10.0%
Tier I Capital
(to Risk Weighted Assets) $55,935 15.0% $14,895 4.0% $22,343 6.0%
Tier I Capital
(to Average Assets) $55,935 8.5% $26,444 4.0% $33,055 5.0%
As of December 31, 1998:
- ------------------------
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%
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. Condensed Financial Information - Parent Company Only
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(In Thousands) 1999 1998
-------- --------
<S> <C> <C>
Assets:
Cash $ 25 $ 124
Securities available for sale 654 1,513
Subsidiary investments:
Sun Bank 53,915 63,644
Pennsylvania SUN Life Insurance Company 393 308
Investment in limited partnerships - 1,506
Receivable from SUN Bank 1,019 691
Other assets 12 22
-------- --------
Total assets $56,018 $67,808
======== ========
Liabilities,
Accounts payable $ 5 $ 7
-------- --------
Shareholders' Equity:
Common stock 81,520 72,913
Retained earnings (deficit) (10,498) (4,949)
Accumulated other comprehensive income (loss) (10,667) 2,016
Treasury stock (4,342) (2,179)
--------- --------
Total shareholders' equity 56,013 67,801
--------- --------
Total liabilities and shareholders' equity $56,018 $67,808
========= ========
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
Years Ended December 31, 1999, 1998, and 1997
(In Thousands) 1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Income:
Dividends from Sun Bank $5,714 $5,545 $4,772
Net security gains 198 226 226
Interest and other income 26 49 90
------- ------- -------
Total income 5,938 5,820 5,088
------- ------- -------
Expenses:
Stationery and printing 23 20 18
Professial fees 87 46 101
Other expenses 143 104 104
Loss from investment in limited partnerships 29 171 134
------- ------- -------
Total expenses 282 341 357
------- ------- -------
Income before income taxes and equity in
undistributed earnings of subsidiaries 5,656 5,479 4,731
Income tax benefit (281) (294) (256)
------- ------- -------
Income before equity in undistributed
earnings of subsidiaries 5,937 5,773 4,987
Equity in undistributed earnings of subsidiaries 2,818 2,953 2,814
------- ------- -------
Net income $8,755 $8,726 $7,801
======= ======= =======
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998, and 1997
(In Thousands) 1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $8,755 $8,726 $7,801
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed earnings of
subsidiaries (2,818) (2,953) (2,814)
Loss from investment in limited
partnerships 29 171 134
Realized net security gains (198) (226) (226)
Increase in other assets (176) (87) (370)
Decrease in liabilities (2) (2) -
------- ------- -------
Net cash provided by operating
activities 5,590 5,629 4,525
------- ------- -------
Cash flows from investing activities:
Proceeds from transfer of investment in limited
partnerships to SUN Bank 1,488 - -
Proceeds from sales of securities 833 804 387
Purchases of available for sale securities (110) (908) (340)
Purchases of investment in limited partnerships - - (844)
------- ------- -------
Net cash provided by (used in)
investing activities 2,211 (104) (797)
------- ------- -------
Cash flows from financing activities:
Cash dividends (6,135) (5,369) (4,217)
Purchase of treasury stock (2,163) (770) -
Proceeds from sale of stock for employee
benefit program 398 627 596
------- ------- -------
Net cash used in financing activities (7,900) (5,512) (3,621)
------- ------- -------
Net increase (decrease) in cash and cash
equivalents (99) 13 107
Cash and cash equivalents at beginning of year 124 111 4
------- ------- -------
Cash and cash equivalents at end of year $ 25 $ 124 $ 111
======= ======= =======
</TABLE>
No interest or income taxes were paid by the parent company during 1999, 1998,
or 1997.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. Consolidated Quarterly Financial Data (Unaudited)
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
1999 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Total
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Interest income $11,218 $11,474 $11,991 $12,771 $47,454
Interest expense (6,061) (6,265) (6,629) (7,275) (26,230)
-------- -------- -------- -------- --------
Net interest income 5,157 5,209 5,362 5,496 21,224
Provision for possible loan losses (450) (450) (450) (575) (1,925)
Net security gains 592 427 517 426 1,962
Other operating income 704 752 758 784 2,998
Other operating expenses (2,880) (2,903) (3,116) (3,180) (12,079)
-------- -------- -------- -------- --------
Income before income taxes 3,123 3,035 3,071 2,951 12,180
Income tax provision (880) (814) (820) (911) (3,425)
-------- -------- -------- -------- --------
Net income $ 2,243 $ 2,221 $ 2,251 $ 2,040 $ 8,755
======== ======== ======== ======== ========
Net income per share - Basic $ .32 $ .33 $ .33 $ .30 $ 1.28
======== ======== ======== ======== ========
Net income per share - Diluted $ .32 $ .33 $ .33 $ .30 $ 1.28
======== ======== ======== ======== ========
</TABLE>
<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 $ .30 $ .31 $ .31 $ .35 $ 1.27
======== ======== ======== ======== ========
Net income per share - Diluted $ .30 $ .30 $ .31 $ .35 $ 1.26
======== ======== ======== ======== ========
</TABLE>
20. Subsequent Event
On January 27, 2000, the Board of Directors declared a cash dividend of $0.24
per common share payable on March 10, 2000 to shareholders of record on
February 25, 2000.
<PAGE>
INDEPENDENT AUDITORS' REPORT
PARENTE RANDOLPH The Power of Ideas
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, 1999 and 1998, 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, 1999. 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
/s/ Parente Randolph, PC
Williamsport, Pennsylvania
February 11, 2000
<PAGE>
FIVE YEAR FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Five Year Financial Highlights
Selected Financial Data
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
Balance Sheet Data (In Thousands)
- ------------------
<S> <C> <C> <C> <C> <C>
Assets $710,921 $623,577 $510,728 $367,390 $319,626
Deposits 400,121 363,886 327,018 205,619 196,592
Loans 377,485 326,928 310,300 213,225 199,444
Securities available for sale 282,616 254,780 165,284 136,538 107,125
Shareholders' equity 56,013 67,801 65,613 38,866 36,020
Average equity 63,537 67,063 51,470 36,886 32,025
Average assets 661,099 575,797 440,181 344,473 309,623
Earnings Data (In Thousands)
- -------------
Interest income $ 47,454 $ 42,677 $ 33,653 $ 27,199 $ 24,439
Interest expense 26,230 22,467 16,619 13,689 12,087
Net interest income 21,224 20,210 17,034 13,510 12,352
Provision for possible loan losses 1,925 1,200 1,175 650 360
Net interest income after provision
for possible loan losses 19,299 19,010 15,859 12,860 11,992
Net security gains 1,962 1,403 1,779 358 130
Other operating income 2,998 2,687 2,046 1,606 1,666
Other operating expenses 12,079 11,295 9,373 6,228 5,984
Income before income tax provision 12,180 11,805 10,311 8,596 7,804
Income tax provision 3,425 3,079 2,510 2,197 2,154
Net income 8,755 8,726 7,801 6,399 5,650
Dividends paid 6,135 5,369 4,217 3,134 2,317
Ratios
- ------
Return on average assets 1.32% 1.51% 1.77% 1.86% 1.83%
Return on average assets
(excluding goodwill) 1.46% 1.68% 1.92% 1.86% 1.83%
Return on average equity 13.78% 13.01% 15.16% 17.35% 17.64%
Return on average equity
(excluding goodwill) 17.70% 16.78% 17.77% 17.35% 17.64%
Equity to assets (year end) 7.88% 10.87% 12.85% 10.58% 11.27%
Loans to deposits (year end) 94.34% 89.84% 94.89% 103.70% 101.45%
Loans to assets (year end) 53.10% 52.43% 60.76% 58.04% 62.40%
Dividend payout (percentage of
net income) 70.07% 61.53% 54.06% 48.98% 41.01%
</TABLE>
<TABLE>
<CAPTION>
Per Share Data
- --------------
<S> <C> <C> <C> <C> <C>
Net income per share - Basic $ 1.28 $ 1.27 $ 1.23 $ 1.09 $ .97
Net income per share - Diluted $ 1.28 $ 1.26 $ 1.22 $ 1.08 $ .97
Net income per share - Basic
(exclusive of goodwill amortization) $ 1.40 $ 1.38 $ 1.29 $ 1.09 $ .97
Cash dividends per share $ .90 $ .78 $ .65 $ .53 $ .42
Book value per share $ 8.25 $ 9.89 $ 9.60 $ 6.64 $ 6.17
Book value per share
(excluding goodwill) $ 6.86 $ 8.40 $ 8.00 $ 6.64 $ 6.17
Average shares outstanding - Basic 6,813,956 6,856,955 6,348,379 5,873,069 5,823,943
Average shares outstanding - Diluted 6,860,114 6,923,366 6,415,596 5,930,306 5,835,856
Approximate number of shareholders 2,105 1,977 1,757 1,518 1,337
</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 subsidiaries, Sun Bank and
Pennsylvania SUN Life Insurance Company. 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 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 fifteen 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, 1999, SUN had 197 full time equivalent
employees.
ANALYSIS OF RESULTS OF OPERATIONS
Summary
SUN achieved record earnings for the year ended December 31, 1999. Net
income reached $8,755,000 in 1999, representing a $29,000 increase over the
$8,726,000 recorded in 1998. Basic earnings per share also reached record
levels at $1.28 compared to the $1.27 earned in 1998. This earnings
performance is further reflected through a solid 1.32% return on average assets
and a 13.78% return on average equity. In 1998, these ratios were 1.51% and
13.01%.
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 net interest margin.
SUN's net interest income for 1999 increased $1,014,000 or 5.02% to
$21,224,000 from $20,210,000 in 1998. On a tax equivalent basis, the net
interest margin spread decreased from 4.01% in 1998 to 3.57% in 1999. Interest
income increased $4,777,000 or 11.19% to $47,454,000 in 1999 from $42,677,000 in
1998. Interest expense increased $3,763,000 or 16.75% to $26,230,000 in 1999
from $22,467,000 in 1998. Interest on deposits and interest on borrowed funds
represented an increase of $3,627,000, while interest on short-term borrowings
increased $136,000. In 1998, interest income rose $9,024,000 or 26.81% as
interest expense increased $5,848,000 or 35.19%. 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 1998.
Interest on deposits in 1999 rose $975,000 or 7.01% as the average rate on
deposits decreased by 15 basis points while average deposits increased 10.82%.
This increase was mainly attributable to an increase in deposit levels
throughout 1999. The average rate on short-term borrowings increased as the
rate on other borrowed funds decreased slightly from 1998 to 1999. The overall
rate on interest-bearing liabilities decreased seven basis points to 4.73% in
1999 from 4.80% in 1998. Interest on deposits in 1998 rose $3,725,000 or 36.59%
as the average rate on deposits increased. This increase in average rate was
mainly attributable to the higher rates on time deposits. The average rate on
short-term borrowings fell in 1998 from 1997. The overall rate on interest-
bearing liabilities increased ten basis points to 4.80% in 1998 from 4.70% in
1997.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balance Sheet
Average assets grew $85,302,000 or 14.81% to $661,099,000 in 1999 from
$575,797,000 in 1998. Average loans grew $33,896,000 or 10.68%, with the rate
earned on loans decreasing 57 basis points from 9.14% in 1998 to 8.57% in 1999.
Average taxable investments increased $72,888,000 or 43.13% to $241,875,000 in
1999 from $168,987,000 in 1998 with the rate earned increasing 23 basis points
to 6.47% in 1999. Tax exempt securities decreased by $14,493,000 or 32.00%
while the tax equivalent yield remained relatively the same at 8.94%. Total
noninterest-earning assets increased $1,563,000 as cash levels were increased in
anticipation of Y2K demands.
SUN's average assets grew $135,616,000 or 30.81% to $575,797,000 in 1998 from
$440,181,000 in 1997. Average loans grew $50,709,000 or 19.02%, with the rate
on loans remaining constant from 9.17% in 1997 to 9.14% in 1998. Average
taxable investments increased $70,192,000 or 71.05% to $168,987,000 in 1998 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 55.40% increase in cash and due from banks and a
54.99% increase in accrued interest and other assets in 1998.
Average interest-bearing liabilities rose $86,975,000 or 18.56% from
$468,545,000 in 1998 to $555,520,000 in 1999. Total average interest-bearing
deposits grew $33,625,000 or 10.82%. NOW's and Insured Money Market Accounts
grew $22,207,000 to $95,215,000 in 1999 from $73,008,000 in 1998. The majority
of the growth in NOW accounts was the result of attracting increased levels of
government funds. Average time deposits increased $9,489,000 to $203,356,000 in
1999. Short term borrowings increased $2,402,000 to $20,408,000 in 1999.
Average other borrowed funds increased $50,948,000 to $190,692,000 in 1999 from
$139,744,000 in 1998. During 1999, additional term borrowings were made to take
advantage of special rates offered by the Federal Home Loan Bank of Pittsburgh
(FHLB). Average noninterest bearing demand deposits increased by $1,603,000
or 4.38%.
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
interest-bearing 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
FHLB. Average demand deposits rose $6,810,000 or 22.83%.
<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) 1999 1998 1997
--------------------------- ----------------------------- -----------------------------
Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
--------- -------- ------ --------- -------- ------ --------- -------- -----
ASSETS
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits $ 3,101 $ 156 5.03% $ 11,653 $ 617 5.29% $ 6,282 $ 271 4.31%
Loans (net of unearned
income) (1) (2) 351,181 30,097 8.57 317,285 28,953 9.13 266,576 24,439 9.17
Investments:
Taxable 241,875 15,640 6.47 168,987 10,542 6.24 98,795 6,402 6.48
Tax exempt (2) 30,802 2,755 8.94 45,295 4,068 8.98 45,847 4,044 8.82
--------- ------- ----- --------- -------- ----- --------- -------- -----
Total interest-earning assets 626,959 48,648 7.76 543,220 44,180 8.13 417,500 35,156 8.42
------- ----- -------- ----- --------- -----
Noninterest-earning assets:
Cash and due from banks 11,291 10,973 7,061
Bank premises
& equipment 9,502 8,939 8,740
Goodwill 9,795 10,554 5,644
Accrued interest and
other assets 7,285 5,855 4,943
Less: Allowance for
loan losses (3,592) (3,388) (3,014)
Unamortized
loan fees (141) (356) (693)
--------- --------- ---------
Total assets $661,099 $575,797 $440,181
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
NOW Accounts $ 73,240 2,118 2.89% $ 51,628 1,226 2.37% $ 35,162 708 2.01%
Insured Money Market
Accounts 21,975 788 3.58 21,380 775 3.62 15,024 593 3.95
Savings deposits 45,849 915 2.00 43,920 986 2.24 36,976 858 2.32
Time deposits 203,356 11,059 5.46 193,867 10,918 5.63 150,763 8,021 5.32
Short-term borrowings 20,408 843 4.13 18,006 707 3.93 19,679 907 4.61
Other borrowed funds 190,692 10,507 5.51 139,744 7,855 5.62 96,072 5,532 5.76
--------- ------- ----- --------- ------- ----- -------- ------- -----
Total interest-bearing
liabilities 555,520 26,230 4.73 468,545 22,467 4.80 353,676 16,619 4.70
------- ----- -------- ----- -------- -----
Noninterest-bearing liabilities
and shareholders' equity:
Demand deposits 38,243 36,640 29,830
Accrued interest and
other liabilities 3,799 3,549 5,205
Shareholders' equity 63,537 67,063 51,470
--------- --------- ---------
Total liabilities and
shareholders' equity $661,099 $575,797 $440,181
========= ========= =========
Interest rate spread 3.03% 3.33% 3.72%
===== ===== =====
Net interest income/margin $22,418 3.57% $21,713 4.00% $18,537 4.44%
======= ===== ======= ===== ======= =====
</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) 1999 Compared to 1998 1998 Compared to 1997
Increase (Decrease) Increase (Decrease)
----------------------------- --------------------------
Volume Rate Net Volume Rate Net
------- -------- -------- -------- ------ -------
Interest earned on:
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits $ (453) $ (8) $ (461) $ 231 $ 115 $ 346
Loans 3,092 (2,001) 1,091 4,656 (142) 4,514
Investments:
Taxable 4,544 547 5,091 4,548 (408) 4,140
Tax exempt (1,302) (11) (1,313) (49) 73 24
------- -------- -------- ------- ------ -------
Total interest-earning assets 5,881 (1,473) 4,408 9,386 (362) 9,024
------- -------- -------- ------- ------ -------
Interest paid on:
NOW Accounts 510 382 892 330 188 518
Insured Money Market Accounts 20 (7) 13 252 (70) 182
Savings deposits 41 (112) (71) 161 (33) 128
Time deposits 531 (390) 141 2,293 604 2,897
Short-term borrowings 95 41 136 (77) (123) (200)
Other borrowed funds 2,862 (210) 2,652 2,517 (194) 2,323
------- -------- -------- ------- ------ -------
Total interest-bearing
liabilities 4,059 (296) 3,763 5,476 372 5,848
------- -------- -------- ------- ------ -------
Net interest income $1,822 $(1,177) $ 645 $3,910 $(734) $3,176
======= ======== ======== ======= ====== =======
</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) 1999 Compared to 1998 1998 Compared to 1997
------------------------------------ -------------------------------------
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 $33,896 10.68% $1,015 3.52% $ 50,709 19.02% $4,514 18.47%
Investment securities 58,395 27.25 4,223 31.91 69,640 48.15 4,164 39.86
Interest-bearing deposits (8,552) (73.39) (461) 74.72 5,371 85.50 346 127.68
-------- ------- ------- ------- -------- ------- ------ -------
Total interest-
earning assets $83,739 15.42% $4,777 11.19% $125,720 30.11% $9,024 25.67%
======== ======= ======= ======= ======== ======= ====== =======
NOW Accounts $21,612 41.86% $ 892 72.76% $ 16,466 46.83% $ 518 73.16%
Insured Money Market
Accounts 595 2.78 13 1.68 6,356 42.31 182 30.69
Savings deposits 1,929 4.39 (71) 7.20 6,944 18.78 128 14.92
Time deposits 9,489 4.89 141 1.29 43,104 28.59 2,897 36.12
Short-term borrowings 2,402 13.34 136 19.24 (1,673) (8.50) (200) (22.05)
Other borrowed funds 50,948 36.46 2,652 33.76 43,672 45.46 2,323 41.99
-------- ------- ------- ------- --------- ------- ------- -------
Total interest
bearing liabilities $86,975 18.56% $3,763 16.75% $114,869 32.48% $5,848 35.19%
======== ======= ======= ======= ========= ======= ======= =======
Net interest income $1,014 5.02% $3,176 18.65%
Provision for possible loan
losses 725 60.42 25 2.12
------- ------ ------- -------
Net interest income after
provision for possible loan
losses 289 1.52 3,151 19.87
------- ------ ------- -------
Service charges on deposit
accounts 62 5.39 215 22.97
Trust income 105 17.02 185 42.82
Net securities gains 559 39.84 (376) (21.14)
Income from insurance subsidiary 53 31.18 19 12.58
Other income 91 12.15 222 42.13
------- ------- ------- -------
Total other operating income 870 21.27 265 6.93
------- ------- ------- -------
Salaries and employee benefits 518 9.11 903 18.88
Net occupancy and equipment expenses 110 6.96 363 29.80
Pennsylvania shares tax 68 14.02 105 27.63
Amortization of goodwill - - 377 99.74
Expenses of insurance subsidiary (57) (30.65) 23 14.11
Other expenses 145 5.57 151 6.16
------- ------- ------- -------
Total other operating expenses 784 6.94 1,922 20.51
------- ------- ------- -------
Income before income tax provision 375 3.18 1,494 14.49
Income tax provision 346 11.24 569 22.67
------- ------- ------- -------
Net income $ 29 .33% $ 925 11.86%
======= ======= ======= =======
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OTHER OPERATING INCOME
SUN's total other operating income increased $870,000 or 21.27% in 1999.
Service charges on deposit accounts increased to $1,213,000. The increase was
due primarily to increased fee income from transaction accounts and increased
ATM usage. Trust income increased $105,000 to $722,000 as trust accounts and
balances continue to show growth. Net security gains increased $559,000 to
$1,962,000. Other income, mainly comprised of non-yield related loan fees and
other miscellaneous income, increased $91,000 or 12.15%. The increase is mainly
the result of a change in the method of recognizing amortization of SUN's
investment in limited partnerships for two affordable elderly housing projects,
resulting in an increase of $142,000 over 1998. This accounting change was not
deemed to be significant as it relates to SUN's overall financial statements.
In addition, gains on sale of loans increased $74,000 while gains on sale of
other real estate owned decreased $58,000 from 1998. The remaining change is
the result of decreased miscellaneous income and a reduction in non-yield
related loan fees.
In 1998, SUN's total other operating income increased $265,000 or 6.93%.
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 ATM usage. 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.
The table below illustrates the changes in other operating income for the
years ended December 31, 1999, 1998, and 1997.
<TABLE>
<CAPTION>
(In Thousands) 1999 % Change 1998 % Change 1997
------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C>
Service charges on deposit accounts $1,213 5.39% $1,151 22.97% $ 936
Trust income 722 17.02 617 42.82 432
Net securities gains 1,962 39.84 1,403 (21.14) 1,779
Income from insurance subsidiary 223 31.18 170 12.58 151
Other income 840 12.15 749 42.13 527
------ ------ ------ ------- ------
Total other operating income $4,960 21.27% $4,090 6.93% $3,825
====== ====== ====== ======= ======
OTHER OPERATING EXPENSES
SUN's total other operating expenses increased $784,000 or 6.94% to
$12,079,000 in 1999. Increases in salaries and employee benefits, and
furniture and equipment expenses were reflective of SUN's opening of two branch
locations and SUN's continued emphasis on expanding SUN's market area. At
December 31, 1999, SUN had 197 full-time equivalent employees, representing an
increase of nine employees from 1998. Also, the increase in salaries and
employee benefits was the direct result of SUN's decreased indirect consumer
lending which caused the amount of wages capitalized to comply with Statement of
Financial Accounting Standards No. 91 to decrease $181,000 from 1998.
Pennsylvania shares tax increased $68,000 as a continued result of the Bucktail
acquisition. Amortization of goodwill remained constant at $755,000 for 1999.
The amortization is the result of goodwill related to the acquisition of
Bucktail. Expenses of the insurance subsidiary decreased $57,000 to $129,000
for 1999. This reduction of expense was due to a decrease in the required claim
reserves, which offset claims incurred during the year. Other expenses
increased $145,000 in 1999 due to increases in general operating expenses such
as marketing, insurance, supplies and postage.
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 three 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.
The table below illustrates the changes in other operating expenses for the
years ended December 31, 1999, 1998, and 1997.
</TABLE>
<TABLE>
<CAPTION>
(In Thousands) 1999 % Change 1998 % Change 1997
------- -------- ------- -------- ------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $ 6,204 9.11% $ 5,686 18.88% $4,783
Net occupancy expenses 653 (7.90) 709 24.39 570
Furniture and equipment expenses 1,038 19.04 872 34.57 648
Pennsylvania shares tax 553 14.02 485 27.63 380
Amortization of goodwill 755 - 755 99.74 378
Expenses of insurance subsidiary 129 (30.65) 186 14.11 163
Other expenses 2,747 5.57 2,602 6.16 2,451
------- ------- ------- ------ ------
Total other operating expenses $12,079 6.94% $11,295 20.51% $9,373
======= ======= ======= ====== ======
</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 (loss)
within shareholders' equity. SUN had net unrealized losses on investment
securities of $16,161,000 at December 31, 1999, and net unrealized gains of
$3,056,000 at December 31, 1998. 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, 1999.
<TABLE>
<CAPTION>
(In Thousands) Within After One But After Five But After
One Year Within Five Years Within Ten Years Ten Years Total
------------- ----------------- ---------------- --------------- ---------------
Amort- Amort- Amort- Amort- Amort-
ized ized ized ized ized
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 $393 6.45% $2,273 7.29% $45,634 6.68% $208,305 6.84% $256,605 6.81%
Obligations of
states and political
subdivisions (1) 15 13.85 60 13.85 15 13.85 20,959 8.35 21,049 8.37
Corporate - - - - - - 500 9.00 500 9.00
---- ------ ------ ------ ------- ------ -------- ----- -------- -----
Total $408 6.72% $2,333 7.46% $45,649 6.68% $229,764 6.96% 278,154 6.93
==== ====== ====== ====== ======= ====== ======== ===== -----
Equity securities (2) 20,623
--------
Total investment securities $298,777 6.45%
======== =====
</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 $49,340,000 or 14.71% from $333,465,000 in 1998
to $382,805,000 in 1999. The real estate mortgage portfolio decreased
$13,716,000 or 7.12%, while commercial and industrial loans increased
$61,370,000 or 116.18%, and individual loans increased $1,912,000 or 2.29% from
1998 to 1999. In 1999, SUN experienced a change in demand for real estate and
consumer loans. SUN shifted its efforts to offering fixed and variable
commercial loan products to fulfill the needs of local businesses. These
efforts resulted from the hiring of several experienced commercial lenders and
the development of improved underwriting standards for commercial loans.
In 1998, SUN's total loans increased $15,748,000 or 4.96% from $317,717,000 in
1997.
The loan portfolio is carefully analyzed on a routine basis to ensure
the asset quality remains strong. Real estate loans account for 47.59% 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, 1999.
<TABLE>
<CAPTION>
(In Thousands) 1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Real estate - Mortgage $178,876 $192,592 $202,882 $158,310 $144,746
Real estate - Construction 3,318 3,353 3,632 5,107 4,729
Agricultural 1,059 971 1,157 769 724
Commercial and industrial 114,193 52,823 34,560 24,554 25,713
Individual 85,255 83,343 75,396 32,848 31,205
Other 104 383 90 145 60
Unearned income on loans (740) (1,666) (1,961) (5,357) (5,074)
Deferred loan fees (215) (274) (533) (661) (468)
Unamortized net discount on
purchased loans (508) (1,270) (1,793) - -
Allowance for possible loan losses (3,857) (3,327) (3,130) (2,490) (2,191)
--------- --------- --------- --------- ---------
Total loans, net $377,485 $326,928 $310,300 $213,225 $199,444
======== ========= ========= ========= =========
</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, 1999. 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 $59,134 $21,624 $34,598 $115,356
Real estate - Construction 3,318 - - 3,318
------- ------- ------- --------
Total $62,452 $21,624 $34,598 $118,674
======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
Interest Rate Sensitivity
-----------------------------------
Fixed Variable
Rate Rate Total
------- -------- --------
<S> <C> <C> <C>
Due within one year $13,257 $49,195 $ 62,452
Due after one year 43,462 12,760 56,222
------- ------- --------
Total $56,719 $61,955 $118,674
======= ======= ========
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
NONPERFORMING LOANS
Nonperforming loans include nonaccrual, past due, and restructured loans.
SUN's policy is to place a loan in 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, 1999, total nonperforming loans amounted to $3,300,000 or
.86% of total gross loans. Total loans, gross, grew $49,340,000 or 14.71% to
$382,805,000 in 1999. Even though total loans have substantially increased,
nonperforming loans have decreased $445,000 or 11.88% from $3,745,000 in 1998.
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 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 1999, 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 its internal review process is complete
and accurate. A similar external loan review is planned for 2000.
The following table presents information on nonaccrual, past due, and
restructured loans for the five years ended December 31, 1999.
<TABLE>
<CAPTION>
(In Thousands) 1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $1,965 $ 635 $1,110 $ 236 $ -
Loans past due 90 days or more 1,015 2,867 2,988 1,863 1,989
Restructured loans 320 243 326 153 148
------ ------ ------ ------ ------
Total nonperforming loans $3,300 $3,745 $4,424 $2,252 $2,137
====== ====== ====== ====== ======
</TABLE>
The total nonperforming loans above included "impaired" loans of approximately
$2,517,000 at December 31, 1999 and $2,523,000 at December 31, 1998. In
accordance with SFAS No. 114, a loan is considered impaired when, based on
current information and events, it is probable 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 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.
The allowance for possible loan losses is evaluated based on management's
assessment of the losses inherent in the loan portfolio. Factors used in this
evaluation include historical data on losses by loan type, the composition of
the loan portfolio, current economic conditions, and possible losses related to
specific loans. The monthly analysis of possible losses includes identifying
loans where the internal credit rating is at or below a predetermined level and
includes management's assumptions as to the ability of the borrowers to service
the loans. During this review, it is decided when certain loans should be
charged off and if additions to the allowance are necessary.
The allowance consists of two components, the specific allocation and the
general allocation. The specific allocation reflects expected losses resulting
from the analysis of individual loans with internal credit ratings below a
predetermined level. The general allocation reflects management's evaluation of
the other factors, such as historical losses and current economic conditions in
the markets served by SUN. The general allocation also includes management's
determination of the amounts necessary for concentrations and changes in the mix
and volume of the loan portfolio. In addition to the management review, SUN
engages a consulting firm to perform an annual independent credit review of loan
relationships in excess of $250,000, and considers the results of this review in
determining the allowance.
At December 31, 1999, management deems the allowance to be adequate;
however, future additions may be necessary based on economic, market, or other
unforeseeable conditions, or if required by banking regulatory agencies.
Although management makes its best estimate as to the additions to the
allowance, there can be no assurance future material additions may not be
needed.
<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, 1999.
<TABLE>
<CAPTION>
(In Thousands) 1999 1998 1997 1996 1995
--------------- ---------------- ---------------- ---------------- ----------------
% of % of % of % of % of
Total Total Total Total Total
Allowance Loans Allowance Loans Allowance Loans Allowance Loans Allowance Loans
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate $ 844 47.59% $1,408 58.76% $1,651 65.00% $1,009 73.70% $ 631 72.15%
Commercial
and industrial 908 30.13 479 16.25 335 11.27 1,013 11.49 1,080 12.79
Individual 2,105 22.28 1,440 24.99 1,144 23.73 468 14.81 480 15.06
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
Total allowance
for possible
loan losses $3,857 100.00% $3,327 100.00% $3,130 100.00% $2,490 100.00% $2,191 100.00%
====== ======= ====== ======= ====== ======= ====== ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
(In Thousands) 1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $3,327 $3,130 $2,490 $2,191 $1,999
------- ------- ------- ------- -------
Loans charged off:
Real estate (389) (271) (962) (18) (50)
Commercial and industrial (169) (276) (145) (113) (37)
Individual (1,048) (704) (895) (236) (89)
------- ------- ------- ------- ------
Total loans charged off (1,606) (1,251) (2,002) (367) (176)
------- ------- ------- ------- ------
Recoveries:
Real estate 36 95 22 1 2
Commercial and industrial 26 32 48 4 5
Individual 149 121 105 11 1
------- ------- ------- ------- ------
Total recoveries of loans
charged off 211 248 175 16 8
------- ------- ------- ------- ------
Net loans charged off (1,395) (1,003) (1,827) (351) (168)
------- ------- ------- ------- ------
Provision for possible
loan losses 1,925 1,200 1,175 650 360
------- ------- ------- ------- ------
Allowance for possible loan
losses assumed upon
acquisition of Bucktail - - 1,292 - -
------- ------- ------- ------- ------
Balance, end of year $3,857 $3,327 $3,130 $2,490 $2,191
======= ======= ======= ======= =======
Ratios:
Net charge-offs to average
loans .40% .32% .69% .17% .09%
======= ======= ======= ======= =======
Allowance for possible loan
losses to total loans at
December 31 1.01% 1.00% .99% 1.12% 1.06%
======= ======= ======= ======= =======
Allowance for possible loan
losses to total
nonperforming loans 116.88% 88.84% 70.75% 110.57% 102.53%
======== ====== ======= ======== =======
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
DEPOSITS AND BORROWED FUNDS
SUN's total deposits were $400,121,000 at December 31, 1999 compared to
$363,886,000 at December 31, 1998, an increase of $36,235,000 or 9.96%. SUN
continues to obtain and maintain deposits by offering new and attractive deposit
products, while remaining interest rate competitive. In 1998, total deposits
increased $36,868,000 or 11.27% from $327,018,000 at December 31, 1997.
SUN continued to actively utilize the credit products of the FHLB in 1999. At
year end, overnight borrowings through the FHLB amounted to $21,425,000. The
$214,000,000 in term advances at year end included $210,000,000 in variable rate
advances with maturities ranging from September 8, 2000 to November 19, 2009 and
$4,000,000 in fixed rate advances with maturities ranging from May 24, 2000 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
1999 Total Prior Year
-------- ------- -------------
<S> <C> <C> <C>
Demand deposits $ 37,783 9.44% 3.72%
NOW accounts 98,051 24.51 54.74
Insured Money Market Accounts 20,304 5.07 (6.03)
Savings deposits 43,375 10.84 .91
Time Certificates of Deposit of
$100,000 or more 35,259 8.81 2.18
Other time deposits 165,349 41.33 .21
-------- ------- -------
Total deposits $400,121 100.00% 9.96%
======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
% 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%
======== ======= =======
</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 and a line of credit at Allfirst Bank. At
December 31, 1999, SUN had approximately $15,310,000 in unused funds available
through the FHLB and $5,000,000 through Allfirst Bank. There are no known
trends, demands, commitments, or uncertainties resulting in liquidity increasing
or decreasing 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, 1999 and 1998. 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, 1999 and 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 $167,531,000 in 1999 and $96,726,000 in 1998, meaning it has
more liabilities maturing than assets in the period. However, SUN has
$109,569,000 in 1999 and $76,127,000 in 1998, 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, 1999
--------------------
Expected Cash Flows:
2000 2001 2002 2003 2004 Thereafter Total Fair Value
--------- -------- --------- -------- -------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
- -------
Interest-bearing deposits
Fixed rate $ 980 $ - $ - $ - $ - $ - $ 980 $ 980
Average interest rate 5.03% - - - - - 5.03%
Debt securities available for sale
Fixed rate 40,067 47,616 23,323 24,440 28,712 112,334 276,492 262,337
Average interest rate 6.58% 6.72% 6.70% 6.28% 6.87% 6.84% 6.72%
Variable rate 171 154 138 124 222 853 1,662 1,631
Average interest rate 6.45% 6.45% 6.45% 6.45% 6.45% 6.45% 6.45%
Loans
Fixed rate 18,703 10,895 23,971 28,578 31,902 153,867 267,916 265,203
Average interest rate 8.34% 10.09% 9.72% 9.34% 8.56% 8.02% 8.48%
Variable rate 3,328 3,035 7,240 1,724 1,113 93,129 109,569 109,569
Average interest 8.45% 8.13% 7.96% 8.64% 7.85% 7.49% 7.59% ---------
---------- ---------- ---------- --------- --------- --------- ----------
Total interest-bearing assets
Fixed rate $ 59,750 $ 58,511 $ 47,294 $ 53,018 $ 60,614 $266,201 $ 545,388 $ 528,520
Average interest rate 7.11% 7.35% 8.23% 7.93% 7.76% 7.52% 7.59% ==========
========== ========== ========== ========= ========= ========= ==========
Variable rate $ 3,499 $ 3,189 $ 7,378 $ 1,848 $ 1,335 $ 93,982 $ 111,231 $ 111,200
Average interest rate 8.35% 8.05% 7.93% 8.49% 7.62% 7.48% 7.57% ==========
========== ========== ========== ========= ========= ========= ==========
Liabilities:
- ------------
Interest-bearing deposits
Fixed rate $ 182,355 $ 45,085 $ 5,836 $ 2,739 $ 1,620 $124,703 $ 362,338 $ 363,201
Average interest rate 5.29% 3.41% 5.29% 5.26% 4.75% 2.71% 4.16%
Borrowed funds
Fixed rate 2,000 - 2,000 - - - 4,000 3,975
Average interest rate 6.40% - 7.84% - - - 7.12%
Variable rate 46,425 10,000 55,000 - - 134,541 245,966 241,011
Average interest rate 5.71% 5.77% 5.80% - - 5.11% 5.40% ---------
---------- ---------- --------- --------- --------- --------- ---------
Total interest-bearing liabilities
Fixed rate $ 184,355 $ 45,085 $ 7,836 $ 2,739 $ 1,620 $124,703 $ 366,338 $367,176
Average interest rate 5.30% 3.41% 5.94% 4.78% 4.90% 2.71% 4.19% =========
========== ========== ========== ========= ========= ========= ==========
Variable rate $ 46,425 $ 10,000 $ 55,000 $ - $ - $134,541 $ 245,966 $241,011
Average interest rate 5.71% 5.77% 5.80% - - 5.11% 5.40% =========
========== ========== ========== ========= ========= ========= ==========
Interest rate sensitivity gap
By period
Fixed rate $(124,605) $ 13,426 $ 39,458 $ 50,279 $ 58,994 $141,498 $ 179,050 $ 161,344
Variable rate $ (42,926) $ (6,811) $ (47,622) $ 1,848 $ 1,335 $(40,559) $(134,735) $(129,811)
========== ========== ========== ========= ========= ========= ========== ==========
Cumulative
Total $(167,531) $(160,916) $(169,080) $(116,953) $(56,624) $ 44,315
========== ========== ========== ========== ========= =========
Cumulative interest-bearing
assets as a percentage of
cumulative deposits and
borrowings 27.41% 43.71% 51.51% 66.72% 83.96% 107.24%
========== ========== ========== ========== ========= =========
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
<TABLE>
<CAPTION>
(In Thousands) December 31, 1998
-----------------------
Expected Cash Flows:
1999 2000 2001 2002 2003 Thereafter Total Fair Value
--------- --------- --------- -------- --------- ---------- ----------- ----------
Assets:
- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 40,015 133,807 250,801 254,865
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 rate 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 $206,648 $ 481,544 $487,734
Average interest rate 6.88% 7.68% 7.68% 8.35% 8.11% 7.84% 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 $105,376 $ 147,587 $154,653
Variable rate $ (8,842) $ 2,825 $(14,425) $(53,288) $ 1,088 $(27,953) $(100,695) $(98,775)
========= ========= ======== ========= ======== ======== ========= ========
Cummulative
Total $(96,726) $(127,298) $(91,299) $(91,897) $(30,531) $ 46,892
========= ========== ========= ======== ======== ========
Cumulative interest-bearing
assets as a percentage of
cumulative deposits and
borrowings 38.55% 44.67% 64.67% 71.13% 90.45% 109.11%
======= ======= ======= ======= ======= =======
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
In addition to internally generated gap reports, SUN also utilizes an
externally generated shock analysis to monitor SUN's interest rate sensitivity.
The third party, using information supplied by SUN, generates this model on a
quarterly basis. The model calculates the income effect and present value of
SUN's balance sheet, if rates were to decrease or increase 200 basis points
during the next year. The model uses estimated cash flows based on prepayment
and contractual terms to arrive at the income effect caused by the projected
interest rate change. The following table illustrates the income effect, if
rates were to decrease or increase 200 basis points over the next year based on
SUN's current balance sheet structure.
<TABLE>
<CAPTION>
(In Thousands) At December 31, 1999
------------------------------------------------------
Base
-200 -100 Present Value 100 200
------- ------- ------------- ------- -------
<S> <C> <C> <C> <C> <C>
Interest income:
Loans $30,398 $31,845 $33,045 $34,173 $35,294
Investments 18,510 19,492 19,851 20,073 20,177
------- ------- ------- ------- -------
Total interest income 48,908 51,337 52,896 54,246 55,471
------- ------- ------- ------- -------
Interest expense:
Deposits 12,735 14,039 15,344 16,648 17,952
Borrowings 11,200 12,369 13,538 14,708 15,877
------- ------- ------- ------- -------
Total interest expense 23,935 26,408 28,882 31,356 33,829
------- ------- ------- ------- -------
Net interest income $24,973 $24,929 $24,014 $22,890 $21,642
======= ======= ======= ======= =======
</TABLE>
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 possibly causing 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 possibly exceeding 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 are scheduled as follows:
<TABLE>
<CAPTION>
(In Thousands) December 31, 1999 December 31, 1998
----------------- -----------------
Fair Fair
Cost Value Cost Value
------- ------- ------- -------
<S> <C> <C> <C> <C>
Banks and Bank Holding Companies $ 8,398 $ 6,423 $ 8,871 $ 9,793
FHLB and Other Restricted Stock 12,225 12,225 9,062 9,062
------- ------- ------- -------
Total $20,623 $18,648 $17,933 $18,855
======= ======= ======= =======
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
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
decreased $11,788,000 in 1999. As previously discussed, unrealized gains or
losses, net of taxes, on available for sale securities are reported as
accumulated other comprehensive income (loss) within shareholders' equity. SUN
had unrealized losses, net of tax,of $10,667,000 at December 31, 1999, as
compared to unrealized gains, net of tax, of $2,016,000 at December 31, 1998.
During 1999, SUN paid $6,135,000 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.
YEAR 2000 READINESS
SUN did not experience any problems related to the Year 2000 and does not
expect to experience any, due to the extensive planning, evaluation, and testing
completed by the Year 2000 project team. The project team includes senior
management and members from all departments of the bank and is responsible for
addressing all Year 2000 issues. The Year 2000 team will continue to monitor
mission critical systems and all related issues throughout 2000 and beyond to
ensure SUN's systems remain date compliant.
The banking industry's regulatory agencies implemented a rigorous evaluation
program to monitor all banks to assure they met the guidelines for Year 2000
readiness. SUN's Year 2000 project was completed ahead of the dates in the
Federal Financial Institutions Examination Council (FFIEC) guidelines.
Throughout 1999, awareness programs for customers, employees, and directors
were held. This included an in-house training program for all employees,
quarterly reports to the Board of Directors by senior management, articles in
SUN's quarterly newsletter mailed to customers and shareholders, and letters to
customers. Awareness programs will continue in 2000.
To date, the Year 2000 project has not had a material financial effect on the
bank. The total external cost is under $25,000. Additional costs will be
minimal.
Recent updates
In anticipation of possible customer withdrawals at the end of 1999, SUN
increased the cash available to meet withdrawal demands. However, no large
or voluminous withdrawals occurred, and the excess cash was reduced in
January 2000.
SUN evaluated the vendors from which forms and other office supplies are
purchased. As a precautionary measure, we identified forms and supplies that
are either critical to the operation of our technology systems or are required
for legal disclosures. Additional quantities of these items were
purchased during the fourth quarter of 1999 to ensure our ability to continue
operations if an unforeseen problem prevented a vendor from supplying these
items. No such vendor problem has occurred, and the additional quantities
purchased will be used during the normal course of business in the first quarter
of 2000.
SUN has a disaster recovery plan, which is tested at least annually at a
hotsite. The hotsite provides a redundant computer system at a remote location
to process our work, if SUN cannot use its own computer system for any reason.
<PAGE>
MANAGEMENT'S DISCUSSSION AND ANALYSIS
REGULATORY ACTIVITY
From time to time, various types of federal and state legislation have been
proposed possibly resulting 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 possibly increasing the costs of doing business. Except as
specifically described above, Management believes 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
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 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 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, assumptions, and
other statements which are other than statements of historical fact. SUN and
its subsidiaries wish to caution readers 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, (iii) changes in SUN's
organization, compensation and benefit plans; (iv) 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; (v) the effect of changes in
interest rates; and (vi) the effect of changes in the business cycle and
downturns in the local, regional, or national economies.
SUN's management and the Board of Directors are looking forward to taking
advantage of the many opportunities 2000 is expected to present. SUN's
acquisition of Bucktail in 1997 has allowed us to serve a new and broader
customer base with a varied selection of financial products and services. In
2000, SUN anticipates 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 SUN is
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>
1999 1998
------------------------------- -------------------------------
Bid Information Bid Information
--------------- Cash Dividends --------------- Cash Dividends
Quarter Ended High Low Declared (1) High Low Declared (1)
------ ------ -------------- ------ ------ --------------
<S> <C> <C> <C> <C> <C> <C>
March 31 $26.67 $23.57 $.210 $34.47 $31.74 $.180
June 30 25.88 20.48 .225 31.74 27.86 .195
September 30 24.50 22.25 .230 29.76 26.67 .200
December 31 23.25 19.25 .235 29.52 25.71 .205
</TABLE>
(1) Cash dividends declared are adjusted for the 5% stock dividends occurring in
June of 1999.
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)
Filed by the Registrant ___
Filed by a Party other than the Registrant ___
Check the appropriate box:
Preliminary Proxy Statement
- ---
Confidential, for Use of the Commission Only
- --- (as permitted by Rule 14a-6(c) (2))
___ Definitive Proxy Statement
___ Definitive Additional Materials
Soliciting Material Pursuant to Section 240.14.a-11(c) or
___ Section 240.14a-12
- --------------------------------------------------------------------------------
SUN BANCORP, INC.
- --------------------------------------------------------------------------------
Payment of Filing Fee (Check the appropriate box):
X No Fee Required
- ---
___ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and O-11
1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies;
- --------------------------------------------------------------------------------
3) Per unit price of other underlying value of transaction computed
pursuant to Exchange Act Rule O-11 (Set forth the amount on which
the filing fee is calculated and state how it wa determined):
- --------------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
5) Total fee paid:
- --------------------------------------------------------------------------------
___ Fee paid previously with preliminary materials
___ Check box if any part of the fee is offset as provided by Exchange Act
O-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
- --------------------------------------------------------------------------------
2) Form, Schedule of Registration Statement No:
- --------------------------------------------------------------------------------
3) Filing Party:
- --------------------------------------------------------------------------------
4) Date Filed:
- --------------------------------------------------------------------------------
(LOGO)
March 30, 2000
Dear Shareholder:
It is a pleasure to invite you to the 2000 Annual Shareholders' Meeting of SUN
BANCORP, INC. ("SUN") to be held on April 27, 2000.
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 2000. At the meeting, SUN's management
will address other corporate matters that will be of interest to you.
You are cordially invited to the shareholders' luncheon that 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 14,
2000 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 27, 2000
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Shareholder of SUN
BANCORP, INC. hereby constitutes and appoints Robert C. Fogle and Calvin M.
Witmer (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 27, 2000, 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 2003 ARE:
Thomas B. Hebble
Jeffrey E. Hoyt
Paul R. John
Fred W. Kelly, Jr.
and until their successors are duly elected, qualified and take office.
PLEASE CHECK ONLY ONE OF THE BOXES BELOW. IF BOX (c) IS CHECKED, PLEASE
CROSS OUT THE NAME OF EACH NOMINEE FROM THE LIST ABOVE FOR WHOM YOU WISH
YOUR PROXIES NOT TO VOTE FOR IN THE ELECTION OF DIRECTORS.
[ ] (a) TO VOTE FOR all nominees listed above;
[ ] (b) NOT TO VOTE FOR any of the nominees listed above;
[ ] (c) TO VOTE FOR all the nominees listed above except those whose
[ ] names are crossed out.
2. TO RATIFY THE APPOINTMENT OF PARENTE RANDOLPH, PC, CERTIFIED PUBLIC
ACCOUNTANTS, AS THE INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR SUN
BANCORP, INC. FOR THE YEAR ENDING DECEMBER 31, 2000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Board of Directors recommends a vote FOR this proposal.
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., 2000.
________________________________ (SEAL)
Signature
________________________________ (SEAL)
Signature
________________________________ (SEAL)
Signature
Number of Shares Owned _____________ Signatures above will be determined to
have been as of March 10, 2000 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 27, 2000
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 27, 2000 at 10:30 a.m., prevailing time,
for the following purposes:
1. To elect four (4) directors to serve for a three (3) year term and until
their successors are elected, qualified and take office;
2. To ratify the appointment of Parente Randolph, PC, Independent
Accountants, as the Corporation's independent auditors for the fiscal year
ending December 31, 2000; 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 10, 2000 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 30, 2000
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 27, 2000
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 2000 Annual Meeting of Shareholders ("Annual Meeting"). The
Annual Meeting is scheduled to be held on Thursday, April 27, 2000 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 that 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 30, 2000. 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.
<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 10, 2000. Only holders of
record of common stock on the Corporation's books at the close of business on
March 10, 2000 will be entitled to notice of and to vote at the Annual Meeting.
On that date, the Corporation had outstanding 6,789,358 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, PC, Independent Accountants, as the
Corporation's independent auditors for the fiscal year ending December 31, 2000.
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 that 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 four (4) nominees for director
receiving the highest number of votes cast by shareholders entitled to vote for
the election of directors shall be elected. Votes withheld from a nominee and
broker non-votes will not be cast for such nominee.
Assuming the presence of a quorum, the affirmative vote of a majority of all
votes cast by shareholders on such matter is required for the ratification of
the appointment of independent certified public accountants. Abstentions and
broker non-votes are not deemed to constitute "votes cast" and therefore do not
count either for or against such ratification. Abstentions and broker non-
votes, however, have the practical effect of reducing the number of affirmative
votes required to achieve a majority for each such matter by reducing the total
number of shares voted from which the required majority is calculated.
The Corporation has no present reason to believe that any of the Board's
nominees will be unable to serve as a director, if elected. The Board of
Directors does not know whether any nominations will be made at the Annual
Meeting other than those specified in this proxy statement. If any such
nominations are made, or if votes are cast for any candidates other than those
nominated by the Board of Directors, the persons named as proxyholders will vote
for those persons nominated by the Board and identified in this proxy statement.
Security Ownership of Certain Beneficial Owners
The following table sets forth, as of March 10, 2000, 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 1,043,922 15.37%
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 fifteen (15) directors with (i) four (4) directors in the class whose term
expires at the annual meeting in 2000, (ii) six (6) directors in a class whose
term expires at the annual meeting in 2001, and (iii) five (5) directors in the
class whose term expires at the annual meeting in 2002. 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
1999. 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 Messrs. Bingaman, Hebble and John, and each incumbent director, other than
Messrs. Gurgovits, John and Schnure, attended at least seventy five percent
(75%) of the total number of meetings held by all committees of the Board on
which such incumbent served.
The Committees of the Corporation's Boards
Executive/Asset & Liability Management Committee (the "Executive/ALCO").
------------------------------------------------------------------------
TheExecutive/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 1999.
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 four (4) meetings
in 1999. 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;
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 two (2) meetings during 1999. 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 seven (7) meetings during
1999. 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 1999. The
members of the Committee are: Louis A. Eaton, Chairman; 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 seven (7) meetings
during 1999. A subcommittee of the Personnel and Retirement Committee called
the Compensation Committee, which is comprised of three (3) outside Directors
(Mr. Keller, Mr. Bingaman and Mr. Hormell), 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 four (4) meetings in 1999. The members of the Personnel and Retirement
Committee are: George F. Keller, Chairman; Robert A. Hormell, Vice Chairman;
Max E. Bingaman; Jeffrey E. Hoyt; Paul R. John; Fred W. Kelly, Jr.; Lehman B.
Mengel; Dennis J. Van; and as an ex officio member, Sun Bank's Director of Human
Resources.
5
<PAGE>
Members of the Boards of Directors - Biographical Information
NOMINEES FOR ELECTION TO SERVE UNTIL 2003
THOMAS B. HEBBLE, age 39, is Executive Vice President of First National Bank
of Pennsylvania and previously served as Senior Vice President of Metropolitan
National Bank of Ohio. Mr. Hebble is a director of Gelvin, Jackson & Starr,
Inc., an insurance subsidiary of FNB Corporation, a director of First National
Insurance Services Company, an insurance subsidiary of First National Bank of
Pennsylvania, a director of the Horizon Foundation, a fund raising arm of the
University of Pittsburgh Medical Center and a director of the Sharon Country
Club. He has served on the Board of the Corporation since 1997 and he serves on
the Audit Committee. Mr. Hebble's term as a director expires in 2000 and if
elected will serve until 2003.
JEFFREY E. HOYT, age 44, 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 he serves on the Executive/ALCO, Investment, Long Range Planning/M&A
and Personnel and Retirement Committees. Mr. Hoyt's term as a director expires
in 2000 and if elected will serve until 2003.
PAUL R. JOHN, age 62, 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 he serves on
the Personnel and Retirement Committee. Mr. John's term as a director expires
in 2000 and if elected will serve until 2003.
FRED W. KELLY, JR., age 55, President and Chief Executive Officer of the
Corporation and Sun Bank. Mr. Kelly is Chairman of Selinsgrove Area Industrial
Development, Inc. He is a trustee and past president of Sunbury Community
Hospital & Outpatient Center, director of the Central Susquehanna Valley Chamber
of Commerce, past director of Susquehanna University, director of the PA Bankers
Public Affairs Committee 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 he serves on all the Board Committees of
the Corporation other than the Audit Committee. Mr. Kelly's term as a director
expires in 2000 and if elected will serve until 2003.
6
<PAGE>
DIRECTORS CONTINUING IN OFFICE UNTIL 2001
MAX E. BINGAMAN, age 64, 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 Bethesda Treatment Center, a
privately operated program for troubled youth, located in Milton, the
Pennsylvania Family Institute, a trustee of Sunbury Community Hospital &
Outpatient Center, 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 56, 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, Gelvin, Jackson & Starr, Inc., an insurance subsidiary of
FNB 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 52, 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 president of the Central
Pennsylvania Forum for the Future and a director of the Warrior Run Community
Corporation. 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 72, 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
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 and Personnel &
Retirement Committees.
HOWARD H. SCHNURE, age 89, 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 77, 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.
7
<PAGE>
DIRECTORS CONTINUING IN OFFICE UNTIL 2002
DAVID R. DIECK, age 66, 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 his term as a director
expires in 2002. He serves on the Audit Committee.
LOUIS A. EATON, age 78, was a Sales Engineer since 1981 for Dorsey Trailers,
Inc., a manufacturer and distributor of truck trailers and retired on
December 31, 1986. He has served in various capacities with Dorsey Trailers,
Inc. (formerly Trailco Manufacturing and Sales Co., Inc.) since 1947. He has
served on Sun Bank's Board since 1979 and the Corporation's Board since 1982 and
his term as a director expires in 2002. He serves on the Audit and Nominating
Committees.
DR. ROBERT E. FUNK, age 69, a practicing dentist in Watsontown having started
his general dentistry office in 1957. He was elected to the Corporation's Board
in 1993 and served on Sun Bank's Board since 1977 and his term as a director
expires in 2002. He serves on the Audit and Nominating Committees.
GEORGE F. KELLER, age 66, 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 his
term as a director expires in 2002. He serves on the Executive/ALCO, Long Range
Planning/M & A and Personnel and Retirement Committees.
DENNIS J. VAN, age 53, is President and owner of The Colonial Furniture
Company, a manufacturer of quality home furniture located in Freeburg, PA. Mr.
Van is a past director and past president of the Susquehanna Valley Country
Club. 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 2002. He serves on the
Personnel and Retirement Committee.
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 13 member Board. All ages
of the directors are as of March 10, 2000, 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 55
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 44
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 10,
2000, 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 10, 2000, 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 10, 2000(1) Owned
- ---- -------------------- -------------
NOMINEES FOR ELECTION AS DIRECTORS
FOR 3 YEAR TERMS EXPIRING IN 2003
Thomas B. Hebble . . . . . . . . . . . 265
Jeffrey E. Hoyt (2) . . . . . . . . . 23,199 .34
Paul R. John (3) . . . . . . . . . . 175,889 2.59
Fred W. Kelly, Jr. (4) . . . . . . . 41,846 .62
DIRECTORS WHOSE TERMS EXPIRE IN 2002
David R. Dieck (5) . . . . . . . . . . 14,462 .21
Louis A. Eaton (6) . . . . . . . . . 17,633 .26
Dr. Robert E. Funk (7) . . . . . . . . 8,176 .12
George F. Keller (8) . . . . . . . . 202,228 2.98
Dennis J. Van (9) . . . . . . . . . . 35,346 .52
DIRECTORS WHOSE TERMS EXPIRE IN 2001
Max E. Bingaman (10) . . . . . . . . 24,198 .36
Stephen J. Gurgovits . . . . . . . . 267
Robert A. Hormell (11) . . . . . . . . 5,872 .08
Lehman B. Mengel (12) . . . . . . . . 94,560 1.39
Howard H. Schnure (13) . . . . . . . . 33,742 .50
Marlin T. Sierer (14) . . . . . . . . 31,444 .47
All directors and executive officers
as a group (23 persons) . . . . . . 732,649 10.79%
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 and 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 10, 2000. Individuals may disclaim beneficial ownership as to
certain of the securities reported.
10
<PAGE>
(2) Includes 3,650 shares jointly held by Mr. Hoyt and Kathy J. Hoyt, his
wife.
(3) Includes 175,889 shares jointly held by Mr. John and Mildred D. John, his
wife.
(4) Includes 28,378 shares held by Donnell W. Kelly, his wife.
(5) Includes 7,231 shares held by Annetta M. Dieck, his wife.
(6) Includes 17,628 shares jointly held by Mr. Eaton and Dorothy L. Eaton, his
wife.
(7) Includes 1,221 shares jointly held by Dr. Funk and Marvene Funk, his wife.
(8) Includes 49,744 shares jointly held by Mr. Keller and Margaret E. Keller,
his wife; 15,537 shares held by Margaret E. Keller, his wife; and 115,796
shares held by Keller Marine Service, Inc.
(9) Includes 15,819 shares jointly held by Mr. Van and Judy A. Van, his wife;
5,735 shares in an Individual Retirement Account for Judy A. Van, his wife
and 7,644 shares held by Colonial Furniture Company.
(10) Includes 16,719 jointly held by Mr. Bingaman and Martha Bingaman, his wife
and 3,558 shares held by Mr. Bingaman in a 401(k) account through Bingaman
& Son Lumber, Inc.
(11) Includes 3,697 shares jointly held by Mr. Hormell and Jean L. Hormell, his
wife.
(12) Includes 94,560 shares held by the L & R Mengel Company.
(13) Includes 5,679 shares jointly held by Mr. Schnure and his son, James Purdy
Schnure, and 4,758 shares jointly held by Mr. Schnure and his daughter,
Sarah J. Lindsay.
(14) Includes 17,363 shares held by H. Arlene Sierer, his wife.
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
three (3) 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
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, 1999, 1998 and 1997 of those persons who were, at
December 31, 1999, (i) the Chief Executive Officer and (ii) the four (4) other
most highly compensated executive officers of the Corporation to the extent such
person's total annual salary and bonus exceeded $100,000:
<TABLE>
<CAPTION>
Annual Compensation 1/ Long-Term Compensation
Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Annual Restricted All Other
Name and Salary Bonus Compensa- Stock Options/ LTIP Comensa-
Principal tion 2/ Award(s) SARs Payouts tion
Position Year ($) ($) ($) ($) (#) 3/ ($) ($) 4/5
-------- ---- --- --- --- --- ------ --- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fred W. Kelly, Jr. 1999 160,000 16,168 2,597 0 15,000 0 24,375
----
President & CEO 1998 152,776 19,079 2,592 0 15,000 0 23,875
----
1997 146,604 30,117 2,635 0 13,387 0 23,539
----
Jeffrey E. Hoyt 1999 145,000 14,500 7,411 0 15,000 0 14,901
----
Exec. VP & COO 1998 125,008 15,626 4,633 0 15,000 0 13,200
----
1997 110,399 21,510 4,257 0 12,600 0 12,358
----
</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 1994 and 1998 Stock Incentive Plan.
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 ($11,575). The respective amounts disclosed for 1998 were
(a) $8,000; (b) $4,800; and (c) $11,075 and for 1997 were (a) $8,000; (b)
$4,800; and (c) $10,739.
5/ Residual category for Mr. Hoyt includes: (a) employer contributions to
defined contribution plan ($8,000); (b) employer contribution to a 401(k)
plan ($4,800); and (c) employer contributions to a non-qualified supplemental
retirement plan ($2,101). The respective amounts disclosed for 1998 were (a)
$7,055; (b) $4,233; and (c) $1,912 and for 1997 were (a) $6,591; (b) $3,954;
and (c) $1,813.
Other than the compensation set forth in the above table and under the several
plan captions below, the other compensation for services during 1999 aggregated
less than the disclosure thresholds established by the Securities and Exchange
Commission for other than the named executive officer.
13
<PAGE>
OPTION/SAR GRANTS TABLE
Option/SAR Grants In Last Fiscal Year
<TABLE>
<CAPTION> Individual Grants
(a) (b) (c) (d) (e) (f) (g)
Number of % of Total
Securities Options/
Underlying SARs Granted Exercise
Options/ to Employees or Base Potential Realizable Value of
SARs Granted in Fiscal Price Expiration Options at Expiration Date
Name (#) 1/ Year ($/Sh) Date ($) 2/ ($) 3/
---- ------ ---- ------ ---- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Fred W. Kelly, Jr. 15,000 18.07% $27.00 5/13/09 $165,000 $502,650
President & CEO
Jeffrey E. Hoyt 15,000 18.07% $27.00 5/13/09 $165,000 $502,650
Ex. VP, COO
& Secretary
</TABLE>
________________________
1/ Options granted under the SUN BANCORP, INC. 1998 Stock Incentive Plan are not
exercisable until November 13, 1999.
2/ Assumed appreciation at a 5% compounded annual rate for 10 years.
3/ Assumed appreciation at a 10% compounded annual rate for 10 years.
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Value of
Number of Securities Unexercised
Underlying Unexercised In-The-Money
Options/SARs at Options/SARs at
Shares Acquired Value Fiscal Year End Fiscal Year End
on Exercise Realized (#) ($)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
---- --- --- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Fred W. Kelly, Jr. 0 $0 85,411/0 $179,284/$0
President & CEO
Jeffrey E. Hoyt 4,250 $38,951 61,525/0 $ 32,015/$0
Ex. VP, COO
& Secretary
</TABLE>
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 and the SNL $500 Million to
$1 Billion Bank Index for the period of five fiscal years commencing January 1,
1995 and ending December 31, 1999. 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,
and the SNL $500 Million to $1 Billion Bank Index
[GRAPH]
NOTE - GRAPH TO FOLLOW WITH HARD COPY
<TABLE>
<CAPTION>
Period Ending
----------------------------------------------------------
INDEX 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sun Bancorp, Inc. 100.00 137.26 187.28 317.23 267.22 202.22
NASDAQ - Total US 100.00 141.33 173.89 213.07 300.25 542.43
SNL $500M-$1B Bank Asset-Size Index 100.00 132.76 165.97 269.80 265.28 245.56
</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
$160,000 in 1999; (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, 1999, Mr. Kelly would have received an aggregate amount of $333,333
for his services through January of 2002.
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 $145,000 in 1999; (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, 1999, Mr. Hoyt
would have received an aggregate amount of $398,750 for his services through
September of 2002.
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 $91,775 for Mr.
Kelly and $117,836 for Mr. Hoyt. This estimated benefit does not take into
consideration any future increases in the officer's base compensation rate, or
the return on the employee's investment in the Contribution Plan, and is a life
income ten (10) year certain benefit and would be actuarially reduced for a
fifty percent (50%) joint and survivor annuity to the officer and his spouse.
SUN 401(k) Plan
Effective January 1, 1990, SUN adopted and made available to eligible
employees of Sun Bank, a profit sharing-savings plan (the "401(k) Plan") for
which Sun Bank is the trustee. The 401(k) Plan is intended to comply with the
requirements of Section 401(k) of the Internal Revenue Code and is subject to
the Employee Retirement Income Security Act of 1974, as amended, ("ERISA").
Employees of SUN's subsidiary, Sun Bank, become eligible to participate in the
401(k) Plan on January 1st following their employment and eighteenth (18th)
birthday. The participating employees (the "participants") may elect to have
from two percent (2%) to fifteen percent (15%) of their compensation, as defined
in the 401(k) Plan, contributed to the 401(k) Plan. SUN's Board will make a
determination at the end of each year, subject to profitability, if a match will
be approved. Under the Tax Reform Act, the maximum amount of elective
contributions that could be made by a participant, during 1999, was ten thousand
17
<PAGE>
dollars ($10,000.00) and the amount that can be contributed in 2000 is ten
thousand five hundred dollars ($10,500.00). All officers and employees of Sun
Bank, including the officers named in the Summary Compensation Table set forth
herein, are eligible to participate in the 401(k) Plan. Non-employee directors,
of SUN and its subsidiaries, are not eligible to participate in the 401(k) Plan.
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 in a
choice of several types of funds, including a money market fund, bond fund,
growth fund, growth and income 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 1999 is included in the "All
Other Compensation" column of the Summary Compensation Table.
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 $425,512
were awarded under the previously disclosed profit sharing plan in 1999. During
1999, 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
1999.
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,
1999, 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 $5,673,164 or approximately 10.13% 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, 1999 through December 31, 1999, 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 2000 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 2003 Annual
Meeting:
Thomas B. Hebble
Jeffrey E. Hoyt
Paul R. John
Fred W. Kelly, Jr.
If one or more of the nominees should at the time of the Annual Meeting be
unavailable or unable to serve as a director, proxies may vote in favor of a
substitute nominee as the Board of Directors determines or the number of
nominees to be elected will be reduced accordingly and shares represented by the
proxies will be voted to elect the remaining nominees. The Board of Directors
knows of no reason why any of the nominees will be unavailable or unable to
serve as directors.
____________________
Assuming the presence of a quorum, the four (4) nominees for director
receiving the highest number of votes cast by shareholders entitled to vote for
the election of directors shall be elected. Proxies solicited by the Board of
Directors will be voted for nominees listed above unless the shareholders
specify a contrary choice in their proxies.
The Board of Directors recommends a vote FOR the nominees listed above.
PROPOSAL 2 RATIFICATION OF APPOINTMENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
(Item 2 on the Proxy)
The Board of Directors has selected the firm of Parente Randolph, PC,
Certified Public Accountants, as its independent certified public accountants to
audit the books, records and accounts of the Corporation for the year 2000.
This firm served as the Corporation's independent auditors for the 1999 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, PC, 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, PC, 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, PC, as the Corporation's, independent
certified public accountants for the year 2000.
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, PC, Certified Public Accountants, as the
Corporation's independent certified public accountants for the year 2000.
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 2001
The Corporation's Annual Meeting of Shareholders will be held on or about
April 26, 2001. 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 8, 2000.
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, 1999, containing, among other things, consolidated financial
statements certified by its independent public accountants, was mailed with this
Proxy Statement on or about March 30, 2000 to the shareholders of record as of
the close of business on March 10, 2000.
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, 1999 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>
SHAREHOLDER LUNCH REPLY CARD
I/We plan to attend the luncheon following the SUN BANCORP, INC. 2000 Annual
Shareholders' Meeting to be held at the Susquehanna Valley Country Club, Mill
Road, Hummels Wharf, Pennsylvania, on Thursday, April 27, 2000 at 10:30 a.m.,
prevailing time.
Number Attending Meeting _____
Number Attending Luncheon _____
The luncheon should begin no later than 12:00 Noon and will be completed by
approximately 12:45 p.m.
Signature ______________________
Print Name ______________________
Signature ______________________
Print Name ______________________
R.S.V.P. by April 14, 2000
To: SUN BANCORP, INC.
2-16 South Market St.
Selinsgrove, PA 17870
If you have any questions that you would like addressed at the Annual Meeting,
please record them on the reverse side.
<PAGE>
Subsidiaries of SUN BANCORP, INC.
---------------------------------
The following table sets forth the subsidiaries of the Registrant at December
31, 1999. 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
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, 1999 of our
report dated February 11, 2000 which appears on page 24 of the annual report to
shareholders for the year ended December 31, 1999.
/s/ Parente Randolph, PC
Williamsport, Pennsylvania
March 28, 2000
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