FORM 10-Q-QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 2000
-------------------------------------------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _________________________ to ___________________
Commission File Number: 0-14745
--------------------------------------------------------
SUN BANCORP, INC. (SUN)
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2233584
- -------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
PO Box 57, Selinsgrove, Pennsylvania 17870
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(570) 374-1131
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Common Stock, No Par Value 6,993,403
- --------------------------------------- --------------------------------------
Class Outstanding Shares At May 5, 2000
<PAGE>
SUN BANCORP, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
CONTENTS Page
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements:
Consolidated Balance Sheet as of March 31, 2000 (Unaudited)
and December 31, 1999 3
Consolidated Statement of Income for the Three Months Ended
March 31, 2000 and March 31, 1999 (Unaudited) 5
Consolidated Statement of Cash Flows for the Three Months Ended
March 31, 2000 and March 31, 1999 (Unaudited) 7
Notes to the Consolidated Financial Statements (Unaudited) 9
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders 20
Item 5 - Other Information 20
Item 6 - Exhibits and Reports on Form 8-K 20
SIGNATURES 20
Exhibit 1
2
<PAGE>
SUN BANCORP, INC.
FORM 10-Q
PART I
Item 1. Financial Statements
SUN BANCORP, INC.
CONSOLIDATED BALANCE SHEET
(In Thousands) March 31, 2000 December 31, 1999
(Unaudited) (Note)
-------------- -----------------
ASSETS
Cash and due from banks $ 13,325 $ 15,079
Interest-bearing deposits in banks 986 980
-------- --------
Total cash and cash equivalents 14,311 16,059
Securities available for sale 276,996 282,616
Loans, net 392,503 379,297
Bank premises and equipment, net 10,548 10,542
Intangible asset, goodwill-net 9,248 9,436
Accrued interest and other assets 12,140 12,971
-------- --------
Total assets $715,746 $710,921
======== ========
3
<PAGE>
SUN BANCORP, INC.
FORM 10-Q
PART I
Item 1. Financial Statements
SUN BANCORP, INC.
CONSOLIDATED BALANCE SHEET
(Continued)
(In Thousands) March 31, 2000 December 31, 1999
(Unaudited) (Note)
-------------- -----------------
LIABILITIES & SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing $ 42,922 $ 37,783
Interest-bearing 362,356 362,338
--------- ---------
Total deposits 405,278 400,121
Short-term borrowings 14,198 35,966
Other borrowed funds 234,000 214,000
Accrued interest and other liabilities 4,507 4,821
--------- ---------
Total liabilities 657,983 654,908
--------- ---------
Shareholders' equity
Common stock, no par value per share;
Authorized 20,000,000 shares
issued 6,990,132 shares in 2000 and
6,985,680 shares in 1999 81,601 81,520
Retained earnings (deficit) (10,319) (10,498)
Accumulated other comprehensive income (loss) (9,014) (10,667)
Less: Treasury stock, at cost
201,744 shares in 2000 and
192,844 shares in 1999 (4,505) (4,342)
--------- ---------
Total shareholders' equity 57,763 56,013
--------- ---------
Total liabilities and shareholders' equity $715,746 $710,921
========= =========
Note: The balance sheet at December 31, 1999 has been derived from the
audited financial statements at that date but does not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
SUN BANCORP, INC.
FORM 10-Q
PART I
Item 1. Financial Statements
SUN BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(In Thousands, Except for Per Share Data) For the Three Months
Ended March 31
--------------------
2000 1999
------- -------
Interest income:
Interest and fees on loans $ 8,176 $ 7,246
Income from available for sale securities
Taxable 4,218 3,090
Tax exempt 252 609
Dividends 281 210
Interest on deposits in banks 7 63
------- -------
Total interest income 12,934 11,218
------- -------
Interest expense:
Interest on deposits 3,948 3,504
Interest on short-term borrowings 341 146
Interest on other borrowed funds 3,121 2,411
------- -------
Total interest expense 7,410 6,061
------- -------
Net interest income 5,524 5,157
Provision for possible loan losses 600 450
------- -------
Net interest income, after provision
for possible loan losses $ 4,924 $ 4,707
------- -------
5
<PAGE>
SUN BANCORP, INC.
FORM 10-Q
PART I
Item 1. Financial Statements
SUN BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
-----------
(Continued)
(In Thousands, Except for Per Share Data) For the Three Months
Ended March 31
--------------------
2000 1999
------ ------
Other operating income:
Service charges on deposit accounts $ 314 $ 271
Trust income 210 159
Net security gains 15 592
Income from insurance subsidiary 81 53
Other income 101 221
------ ------
Total other operating income 721 1,296
------ ------
Other operating expense:
Salaries and employee benefits 1,611 1,539
Net occupancy expenses 179 177
Furniture and equipment expenses 239 256
Amortization of goodwill 189 189
Expenses of insurance subsidiary 48 1
Other expenses 855 718
------ ------
Total other operating expenses 3,121 2,880
------ ------
Income before income tax provision 2,524 3,123
Income tax provision 716 880
------ ------
Net income $1,808 $2,243
PER SHARE DATA
- --------------
Net income per share - Basic $ 0.27 $ 0.33
====== ======
Weighted average number of shares
outstanding - Basic 6,790,632 6,844,507
========= =========
Net income per share - Diluted $ 0.27 $ 0.33
====== ======
Weighted average number of shares
outstanding - Diluted 6,811,874 6,898,005
========= =========
Dividends paid $0.240 $0.210
====== ======
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
SUN BANCORP, INC.
FORM 10-Q
PART I
Item 1. Financial Statements
SUN BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
-----------
(In Thousands) For the Three Months
Ended March 31
--------------------
2000 1999
-------- --------
Cash flows from operating activities:
Net income $ 1,808 $ 2,243
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses 600 450
Provision for depreciation 194 187
Amortization of goodwill 189 189
Amortization and accretion of securities, net 48 53
Net security gains (15) (592)
Decrease in accrued interest and other assets 21 789
Increase (decrease) in accrued interest and
other liabilities (314) 129
-------- --------
Net cash provided by operating activities 2,531 3,448
-------- --------
Cash flows from investing activities:
Proceeds from sales of available for sale securities 4,652 19,124
Proceeds from maturities of available for sale securities 4,212 12,485
Purchases of available for sale securities (773) (41,717)
Net increase in loans (13,848) (9,234)
Capital expenditures (200) (139)
-------- --------
Net cash used in investing activities (5,957) (19,481)
-------- --------
Cash flows from financing activities:
Net increase (decrease) in deposits 5,157 (1,032)
Net decrease in short-term borrowings (21,768) (7,710)
Proceeds from other borrowed funds 50,000 25,000
Repayments of other borrowed funds (30,000) (2,500)
Cash dividends paid (1,629) (1,433)
Proceeds from sale of stock for employee benefits program 81 36
Purchase of treasury stock (163) (1,180)
-------- --------
Net cash provided by financing activities 1,678 11,181
-------- --------
Net decrease in cash and cash equivalents (1,748) (4,852)
Cash and cash equivalents at beginning of period 16,059 14,230
-------- --------
Cash and cash equivalents at end of period $14,311 $ 9,378
======== ========
7
<PAGE>
SUN BANCORP, INC.
FORM 10-Q
PART I
Item 1. Financial Statements
SUN BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
-----------
(Continued)
(In Thousands) For the Three Months
Ended March 31
2000 1999
------ ------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $7,399 $5,883
Income taxes $ 106 $ 235
====== ======
Loans with an estimated value of $42,000 at March 31, 2000
and $119,000 at March 31, 1999 were reclassified to
foreclosed assets held for sale.
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
SUN BANCORP, INC.
FORM 10-Q
PART I
Item 1. Financial Statements
SUN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
-----------
Note 1 -- Basis of Interim Presentation
-----------------------------
The consolidated financial statements include the accounts of SUN BANCORP,
INC. (SUN), the parent company, and its wholly-owned subsidiaries Sun Bank
(Bank) and Pennsylvania Sun Life Insurance Company (SUN Life). The Bank does
business as Snyder County Trust Company, Central Pennsylvania Bank, Bucktail
Bank and Trust Company, and Watsontown Bank. The transactions of SUN Life are
not material to the consolidated financial statements. All significant
intercompany balances and transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements for the interim
periods do not include all of the information and footnotes required by
generally accepted accounting principles. However, in the opinion of
management, all adjustments necessary for a fair presentation of the results of
the interim period have been included. Operating results for the three months
ended March 31, 2000 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2000.
The accounting policies followed in the presentation of interim financial
results are the same as those followed on an annual basis. These policies are
presented on pages 8 and 9 of the 1999 Annual Report to Shareholders.
Certain 1999 amounts have been reclassified to conform to the 2000
presentation.
9
<PAGE>
SUN BANCORP, INC.
FORM 10-Q
PART I
Item 1. Financial Statements
Note 2 - Net Income Per Share
--------------------
Net income per share is computed based on the weighted average number of
shares of stock outstanding for each quarter presented. Statement of Financial
Accounting Standards No. 128., "Earnings Per Share," requires presentation of
two amounts, basic and diluted net income per share.
The following data shows the amounts used in computing net income per share
and the weighted average number of shares of dilutive stock options for the
periods ended March 31, 2000 and 1999.
Common Net
Income Shares Income Per
Numerator Denominator Share
---------- ----------- ----------
2000
- ----
Net income per share - Basic $1,808,000 6,790,632 $0.27
=====
Dilutive effect of potential common stock
arising from stock options:
Exercise of options outstanding 135,965
Hypothetical share repurchase (114,733)
---------- ----------
Net income per share - Diluted $1,808,000 6,811,874 $0.27
========== ========== =====
1999
- ----
Net income per share - Basic $2,243,000 6,844,507 $0.33
=====
Dilutive effect of potential common stock
arising from stock options:
Exercise of options outstanding 247,270
Hypothetical share repurchase (193,772)
---------- ----------
Net income per share - Diluted $2,243,000 6,998,005 $0.33
========== ========== =====
10
<PAGE>
SUN BANCORP, INC.
FORM 10-Q
PART I
Item 1. Financial Statements
Note 3 - Comprehensive Income (Loss)
---------------------------
The purpose of reporting comprehensive income (loss) is to report a measure of
all changes in SUN's equity resulting from economic events other than
transactions with shareholders in their capacity as shareholders. For SUN,
"comprehensive income (loss)" includes traditional income statement amounts as
well as unrealized gains and losses on certain investments in debt and equity
securities (i.e. available for sale securities). Because unrealized gains and
losses are part of comprehensive income (loss), comprehensive income (loss) may
vary substantially between reporting periods due to fluctuations in the market
prices of securities held. This is evidenced by the fact that SUN's net income
decreased for the three months ended March, 2000 compared to the
corresponding period in 1999, but comprehensive income (loss) over the same
period has increased.
(In Thousands) For the Three Months
Ended March 31
---------------------
2000 1999
------- -------
Net income $1,808 $2,243
------- -------
Other comprehensive income (loss):
Unrealized holding gains (losses) on
available for sale securities:
Gains (losses) arising during the period 2,520 (3,113)
Reclassification adjustment - realized
gains included in net income (15) (592)
------- -------
Other comprehensive income (loss)
before income tax provision 2,505 (3,705)
Income tax (expense) benefit related to
other comprehensive income (loss) (852) 1,260
------- -------
Other comprehensive income (loss) 1,653 (2,445)
------- -------
Comprehensive income (loss) $3,461 $ (202)
======= =======
11
<PAGE>
SUN BANCORP, INC.
FORM 10-Q
PART I
Item 1. Financial Statements
Note 4 - Securities Available for Sale
-----------------------------
The amortized cost and fair value of investment securities at March 31, 2000
and December 31, 1999 were as follows:
<TABLE>
March 31, 2000
-------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- --------
Debt securities:
<S> <C> <C> <C> <C>
Obligations of U.S. government agencies $252,345 $ 8 $(10,609) $241,744
Obligations of states and political subdivisions 16,413 71 (650) 15,834
Other corporate 500 - - 500
-------- ---- --------- --------
Total debt securities 269,258 79 (11,259) 258,078
-------- ---- --------- --------
Equity securities:
Marketable equity securities 8,767 40 (2,519) 6,288
Restricted equity securities 12,630 - - 12,630
-------- ---- --------- --------
Total equity securities 21,397 40 (2,519) 18,918
-------- ---- --------- --------
Total $290,655 $119 $(13,778) $276,996
======== ==== ========= ========
December 31, 1999
------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- --------
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>
12
<PAGE>
SUN BANCORP, INC.
FORM 10-Q
PART I
Item 1. Financial Statement
Note 5 - Contingency
-----------
Immediately following the end of the first quarter, SUN received
correspondence from one of its executives requesting payment of certain amounts
and benefits under the executive's intrepretation of his employment agreement.
SUN management disagrees with this interpretation, therefore no provision for
any estimated costs has been made in the first quarter 2000 financial
statements.
13
<PAGE>
SUN BANCORP, INC.
FORM 10-Q
PART I
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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
(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. This discussion should be
read in conjunction with the 1999 Annual Report. Current performance does not
guarantee or assure similar performance in the future, and may not be indicative
of future results.
SUN's net income for the three months ended March 31, 2000 amounted to
$1,808,000, as compared to $2,243,000 for the same period of 1999. Basic and
diluted earnings per share were $0.27 for the three months ended March 31, 2000,
compared to $0.33 basic and diluted for the same period in 1999. SUN achieved a
1.02% return on average assets (ROA) and a 12.91% return on average equity
(ROE) for the three months ended March 31, 2000, compared to ROA of 1.43% and
ROE of 13.18% for the same period of 1999. Without the effect of goodwill,
SUN's ROA would be 1.14% and ROE would be 17.11% for the three months ended
March 31, 2000, compared to ROA of 1.57% and ROE of 16.77% for the same period
of 1999. Earnings per share data for 1999 has been adjusted to reflect a 5%
stock dividend on June 11, 1999.
Results of Operations - Three Months Ended March 31, 2000 and 1999
- ------------------------------------------------------------------
Net interest income increased to $5,524,000 from $5,157,000 for the three
months ended March 31, 2000 and 1999 respectively. Total interest and dividend
income increased $1,716,000 to $12,934,000 for the three months ended March
31, 2000. A majority of the increase, $1,128,000, was the result of SUN's
increased investment in mortgage-backed securities, while tax exempt security
income decreased $357,000. In addition, interest and fees on loans increased
$930,000 or 12.8% to $8,176,000 for the three months ended March 31, 2000.
Interest on deposits in banks decreased 88.9% to $7,000 for the three months
ended March 31, 2000 as SUN utilized its cash to fund loan and investment
growth. Total interest expense increased $1,349,000 for the three months ended
March 31, 2000 as compared to 1999. Of the increase, $905,000 was the result of
borrowings being used to either fund loan growth or investments in higher
yielding mortgage-backed securities as noted above. Interest on deposits
increased 12.7% to $3,948,000 due to the current rising rate environment and
SUN's emphasis on attracting new deposit accounts. In addition, the provision
for possible loan losses increased 33.3% to $600,000 for the three months ended
March 31, 2000. The change was primarily the result of overall growth in SUN's
net loan portfolio of $54,844,000 from March 31, 1999 to March 31, 2000 with
commercial loans increasing $37,010,000 or 64.0% from March 31, 1999.
14
<PAGE>
SUN BANCORP, INC.
FORM 10-Q
PART I
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Total other operating income, excluding security gains, remained steady at
$706,000 for the three months ended March 31, 2000 compared to the same period
of 1999. Service charges on deposit accounts increased 15.9% to $314,000 for
the three months ended March 31, 2000. Trust income increased $51,000 to
$210,000 for the three months ended March 31, 2000 as SUN continues to increase
the number of trust relationships in SUN's market area. Income from the
insurance subsidiary increased $28,000 to $81,000 for the three months ended
March 31, 2000. Other income decreased due to several factors including
decreased gains on the sale of other real estate owned, checkbook sales, and
non-yield related loan fees.
Other operating expenses increased to $3,121,000 for the three months ended
March 31, 2000, compared to $2,880,000 in the same period of 1999. Salaries and
employee benefits increased 4.7% to $1,611,000 as SUN continues to attract new
employees to expand SUN's market area coverage. Net occupancy and furniture
and equipment expenses decreased $15,000 to $418,000. Other expenses increased
19.1% to $855,000 for the three months ended March 31, 2000 due to several
factors. First, in prior years SUN charged collection and recovery expenses to
the associated loan, however; SUN now expenses these charges as incurred. This
change in policy resulted in an increase of $73,000 to other expense. Secondly,
SUN's FDIC assessment increased $11,000 to $22,000 for the three months ended
March 31, 2000. Additionally, SUN's Pennsylvania Shares Tax increased $11,000
from $139,000 for the three months ended March 31, 1999. The remaining increase
is the result of slight increases incurred during normal operations.
Balance Sheet - March 31, 2000 and December 31, 1999
- ----------------------------------------------------
Total assets were $715,746,000 at March 31, 2000, an increase of $4,825,000
from $710,921,000 at December 31, 1999. Cash and cash equivalents decreased
$1,748,000 or 10.9% from $16,059,000 at December 31, 1999. The decrease
occurred as SUN's management used the cash to aid the funding of the increased
net loan volume of $13,206,000 or an 3.5% increase from December 31, 1999. With
mortgages purchased from Tammac Corporation representing $5,296,000 of the
increase. Securities available for sale decreased by $5,620,000 or 2.0%. The
investment portfolio is mainly comprised of mortgage-backed securities and state
and municipal bonds. The intangible asset, goodwill, was reduced to $9,248,000
at March 31, 2000. Also, total liabilities increased $3,075,000 to $657,983,000
at March 31, 2000. Deposits increased by $5,157,000 due primarily to growth of
individual retirement and certificate of deposit accounts. Total borrowed funds
decreased $1,768,000 to $248,198,000 at March 31, 2000 with FHLB term
borrowings increasing $20,000,000 from December 31, 1999. These additional
term borrowings were made to replace short term borrowing's and to take
advantage of special rates offered by the FHLB. SUN's total shareholders'
equity increased $1,750,000 or 3.1% from December 31, 1999 to March 31, 2000.
The increase was primarily the result of debt security market values increasing
$1,985,000, net of tax, while the equity portfolio market values decreased
$332,000, net of tax. Accumulated other comprehensive income is a volatile
component of shareholders' equity as it is derived from changes in the fair
values of SUN's investments in bonds, mortgage-backed securities, stocks, and
other securities.
15
<PAGE>
SUN BANCORP, INC.
FORM 10-Q
PART I
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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 managements
determination of the amounts necessary for concentration 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 March 31, 2000, 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.
16
<PAGE>
SUN BANCORP, INC.
FORM 10-Q
PART I
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Equity Securities Risk
- ----------------------
SUN's equity securities portfolio consists of restricted stock, primarily of
the FHLB, and investments in stocks of other banks and bank holding companies,
mainly based in Pennsylvania.
FHLB stock can only be sold back to the FHLB. Accordingly, SUN's investment
in FHLB stock is carried at cost, which equals par value, and is evaluated for
impairment. Factors that might cause FHLB stock to become impaired (decline in
value on an other than temporary basis) are primarily regulatory in nature and
are related to potential problems in the residential lending market; for
example, the FHLB may be required to make dividend or other payments to the
Financing Corporation, the Resolution Funding Corporation, or other entities, in
amounts that could exceed the FHLB's total equity.
Investments in bank stocks are subject to the risk that factors affecting the
banking industry generally, including competition from non-bank entities, credit
risk, interest rate risk, and other factors, could result in a decline in market
prices. Also, losses could occur in individual stocks held by SUN because of
specific circumstances related to each bank. Further, because of the
concentration of its holdings in Pennsylvania banks, these investments could
decline in value if there were a downturn in the state's economy. SUN's
management continually monitors its risk associated with its equity securities.
Equity securities held as of March 31, 2000 and December 31, 1999 are as
follows :
(In Thousands) March 31, 2000
------------------
Fair
Cost Value
------- -------
Banks and bank holding companies $ 8,767 $ 6,288
FHLB stock 12,630 12,630
------- -------
Total $21,397 $18,918
======= =======
December 31, 1999
------------------
Fair
Cost Value
------- -------
Banks and bank holding companies $ 8,398 $ 6,423
FHLB stock 12,225 12,225
------- -------
Total $20,623 $18,648
======= =======
17
<PAGE>
SUN BANCORP, INC.
FORM 10-Q
PART I
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Capital Adequacy
- ----------------
SUN's strong capital position is evidenced by the following capital ratios
which are well above the regulatory minimum levels.
(In Thousands) For Capital
Actual Adequacy Purposes
------ -----------------
Amount Ratio Ratio
------- ----- -----
As of March 31, 2000:
Total Capital $59,983 15.8% 8.0%
(to Risk Weighted Assets)
Tier I Capital $55,889 14.7% 4.0%
(to Risk Weighted Assets)
Tier I Capital $55,889 8.0% 4.0%
(to Average Assets)
As of December 31, 1999:
Total Capital $59,792 16.1% 8.0%
(to Risk Weighted Assets)
Tier I Capital $55,935 15.0% 4.0%
(to Risk Weighted Assets)
Tier I Capital $55,935 8.5% 4.0%
(to Average Assets)
18
<PAGE>
SUN BANCORP, INC.
FORM 10-Q
PART I
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Regulatory and Industry Merger Activity
- ---------------------------------------
From time to time, various types of federal and state legislation have been
proposed that could result in additional regulation of, and restrictions on, the
business of SUN and Sun Bank. It cannot be predicted whether such legislation
will be adopted or, if adopted, how such legislation would affect the business
of SUN and Sun Bank. As a consequence of the extensive regulation of commercial
banking activities in the United States, SUN's and Sun Bank's business is
particularly susceptible to being affected by federal legislation and
regulations that may increase the costs of doing business. Except as
specifically described above, management believes the effect of the provisions
of legislation on the liquidity, capital resources, and results of operations of
SUN will be immaterial. Future recommendations by regulatory authorities or
proposed legislation, which if they were implemented, would have a material
adverse effect upon the liquidity, capital resources, or results of operations,
although the general cost of compliance with numerous and multiple federal and
state laws and regulations does have, and in the future may have, a negative
impact on SUN's results of operations.
Further, the business of SUN is also affected by the state of the financial
services industry in general. As a result of legal and industry changes,
management predicts 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.
19
<PAGE>
SUN BANCORP, INC.
FORM 10-Q
PART II
Items 1, 2, and 3 -- Omitted pursuant to instructions to Part II
Item 4 -- Submission of Matters to a Vote of Security Holders
a. SUN BANCORP, INC held its 2000 Annual Meeting on Thursday,
April 27, 2000. See exhibit 1 for complete Certificate of Judges
of election.
b. This information is incorporated by reference to Exhibit1, item
number one. Those directors whose term of office continued after
the meeting are:
Max E. Bingaman David R. Dieck
Stephen J Gurgovits Louis A. Eaton
Robert A. Hormell Dr. Robert Funk
Lehman B. Mengel George F. Keller
Howard H Schnure Dennis J. Van
Marlin T. Sierer Robert J. McCormack
c. This information is incorporated by reference to Exhibit 1
d. None
Item 5 -- Other information
The registrants's Board of Directors continued the authorization or the
repurchase of up to 5% of SUN BANCORP, INC.'s outstanding shares. The stock
buy-back program is effective until April 2001. The purchased shares will be
used for general corporate purposes.
On April 24, 2000, the Board of Directors approved a quarterly dividend
payment of $.240 per share for shareholders of record May 26, 2000, payable June
9, 2000.
Item 6 -- Exhibits and Reports on Form 8-K
a. No reports on Form 8-K were filed for the quarter ending March 31,
2000.
20
<PAGE>
SUN BANCORP, INC.
FORM 10-Q
PART II
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUN BANCORP, INC.
Date 5/12/00 /s/ Fred W. Kelly, Jr.
----------------------- -----------------------------------
Fred W. Kelly, Jr.
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
/s/ Robert J. McCormack
-----------------------------------
Robert J. McCormack
President & Chief Operating Officer
(Principal Financial Officer and
Principal Accounting Officer)
SUN BANCORP, INC.
PO Box 57
Selinsgrove, PA 17870
(570) 374-1131
21
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SUN BANCORP, INC.
ANNUAL MEETING OF SHAREHOLDERS
APRIL 27, 2000
CERTIFICATE OF JUDGES OF ELECTION
We, Willard J. Bowen, Charles C. Snyder and Michael P. Fisher, Judges of
Election at the Annual Meeting of Shareholders of SUN BANCORP, INC. held on
April 27, 2000, hereby certify as follows:
a) That we have reviewed the list of shareholders, proxies and other
relevant papers and records in connection with the aforesaid meeting:
b) That there are, and were, at the close of business on March 10, 2000, the
record date for the aforesaid meeting, 6,789,358 shares of the
Corporation outstanding:
c) That we have examined all of the proxies submitted to us with respect to
the aforesaid meeting:
d) That there were present in person or by valid proxy, the holder of
5,699,364 shares:
e) That we have counted and tabulated all ballots submitted by the aforesaid
holders, in person or by proxy:
f) That the vote for the election of three (3) directors to the Corporation
whose terms end as indicated below is as follows:
Thomas B. Hebble, 3 year term to expire in 2003
FOR 5,554,976 AGAINST 144,388
Paul R. John, 3 year term to expire in 2003
FOR 5,652,138 AGAINST 47,226
Fred W. Kelly, Jr., 3 year term to expire in 2003
FOR 5,646,766 AGAINST 52,598
g) To ratify the appointment of Parente, Randolph, Certified Public
Accountants as the independent certified public accountants for SUN
BANCORP, INC. for the year 2000.
FOR 5,644,883 AGAINST 10,810 ABSTAIN 43,670
Judges of Election
/s/ Willard J. Bowen
--------------------
Willard J. Bowen
/s/ Charles C. Snyder
---------------------
Charles C. Snyder
/s/ Michael P. Fisher
---------------------
Michael P. Fisher
