**FORM10-Q—QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

** **

**FORM 10-Q/A**

 

| **ý****Quarterly Report Pursuant to Section 13 or 15(d) of  the Securities Exchange Act of 1934**                                                                                                                                                                                            |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **For the quarterly period ended March 31, 2003**                                                                                                                                                                                                                                                 |
| **or**                                                                                                                                                                                                                                                                                            |
| **o****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.**

(Exact name of registrant as specified in its charter)

 

| **Pennsylvania**                                                                    |   | **23-2233584**                        |
|-------------------------------------------------------------------------------------|--------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization)                     |   | (I.R.S. Employer  Identification No.) |
|                                                                                |   |                                  |
| **155 North 15th Street,  Lewisburg, PA**                                           |   | **17837**                             |
| (Address of principal executive offices)                                            |   | (Zip code)                            |
|                                                                                |   |                                  |
| **(570) 523-4330**                                                                  |
| (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 whetherthe registrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90days.                Yes  ý        No  o

 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCYPROCEEDINGS DURING THE PRECEDING FIVE YEARS:

 

Indicate by check mark whetherthe registrant has filed all documents and reports required to be filed bySections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent tothe distribution of securities under a plan confirmed by acourt.              Yes  o        No  o

 

Indicate by check mark whetherthe registrant is an accelerated files (as defined in Rule 12b-2 at theAct).       Yes  ý     No  o

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate the number of sharesoutstanding of each of the issuer’s classes of Common Stock, as of the latestpracticable date.

 

| **Common Stock, No Par Value** |   | **7,253,228**                        |
|--------------------------------|--------|--------------------------------------|
| Class                          |   | Outstanding Shares At April 25, 2003 |

 

 

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SUN BANCORP, INC.FORM 10-QFOR THE QUARTER ENDED MARCH 31, 2003

 

CONTENTS

 
| PART I - FINANCIAL INFORMATION                                                                       |
|------------------------------------------------------------------------------------------------------|
|                                                                                                 |
| Item 1 - Financial Statements:                                                                       |
|                                                                                                 |
|                                                                                                 | Consolidated Balance Sheet as of March 31, 2003 (Unaudited) and  December 31, 2002 |
|                                                                                                 |
|                                                                                                 | Consolidated Statement of Income for the  Three Months Ended March 31, 2003 and March 31, 2002 (Unaudited) |
|                                                                                                 |
|                                                                                                 | Consolidated Statement of Cash Flows for  the Three Months Ended March 31, 2003 and March 31, 2002 (Unaudited) |
|                                                                                                 |
|                                                                                                 | Notes to the Consolidated Financial  Statements (Unaudited) |
|                                                                                                 |
| Item 2 - Management’s Discussion and  Analysis of Financial Condition and Results of Operations |
|                                                                                                 |
| Item 4 - Controls and Procedures                                                                     |
|                                                                                                 |
| PART II - OTHER INFORMATION                                                                          |
|                                                                                                 |
| Item 5 - Other Information                                                                           |
|                                                                                                 |
| Item 6 - Exhibits and Reports on Form 8-K                                                            |
|                                                                                                 |
| SIGNATURES                                                                                           |

 

2

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SUN BANCORP, INC.FORM 10-QPART I

 

Item 1.  Financial Statements

 

SUN BANCORP, INC.CONSOLIDATED BALANCE SHEET

 
| **(In Thousands, Except Share Data)**                                                   |   | **March 31,  2003** |      | **December  31, 2002** |   |
|-----------------------------------------------------------------------------------------|--------|---------------------|-----------|------------------------|--------|
|                                                                                    |   | **(Unaudited)**     |      |                   |   |
| ASSETS                                                                                  |   |                |      |                   |   |
|                                                                                    |   |                |      |                   |   |
| Cash and due from banks                                                                 |   | $                   | 24,984    |                   | $      | 21,399 |   |
| Interest-bearing deposits in banks                                                      |   | 1,112               |      | 20,170                 |   |
| Total cash and cash equivalents                                                         |   | 26,096              |      | 41,569                 |   |
|                                                                                    |   |                |      |                   |   |
| Investment securities                                                                   |   | 279,167             |      | 219,438                |   |
| Loans, net of allowance for loan and lease  losses of $6,478 in 2003 and $6,206 in 2002 |   | 589,009             |      | 583,519                |   |
| Bank premises and equipment, net                                                        |   | 16,572              |      | 15,809                 |   |
| Goodwill                                                                                |   | 23,345              |      | 22,924                 |   |
| Accrued interest                                                                        |   | 3,607               |      | 3,501                  |   |
| Bank owned life insurance                                                               |   | 31,126              |      | 30,800                 |   |
| Other assets                                                                            |   | 35,831              |      | 33,614                 |   |
| Total assets                                                                            |   | $                   | 1,004,753 |                   | $      | 951,174 |   |

 

3

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| **(In Thousands, Except Share Data)**                                                                                              |   | **March 31,  2003** |      | **December  31, 2002** |   |
|------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|-----------|------------------------|--------|
|                                                                                                                               |   | **(Unaudited)**     |      |                   |   |
|                                                                                                                               |   |                |      |                   |   |
| LIABILITIES & SHAREHOLDERS’ EQUITY                                                                                        |   |                |      |                   |   |
|                                                                                                                               |   |                |      |                   |   |
| Deposits                                                                                                                           |   |                |      |                   |   |
| Noninterest-bearing                                                                                                                |   | $                   | 57,649    |                   | $      | 59,181 |   |
| Interest-bearing                                                                                                                   |   | 540,418             |      | 528,299                |   |
| Total deposits                                                                                                                     |   | 598,067             |      | 587,480                |   |
|                                                                                                                               |   |                |      |                   |   |
| Short-term borrowings                                                                                                              |   | 66,387              |      | 29,682                 |   |
| Other borrowed funds                                                                                                               |   | 231,900             |      | 222,000                |   |
| Subordinated debentures                                                                                                            |   | 19,655              |      | 19,655                 |   |
| Accrued interest and other liabilities                                                                                             |   | 8,709               |      | 13,110                 |   |
| Total liabilities                                                                                                                  |   | 924,718             |      | 869,927                |   |
|                                                                                                                               |   |                |      |                   |   |
| Shareholders’ equity                                                                                                          |   |                |      |                   |   |
|                                                                                                                               |   |                |      |                   |   |
| Common stock, no par value per share;  20,000,000 authorized shares: issued 7,316,644 shares in 2003 and 7,299,446  shares in 2002 |   | 84,933              |      | 84,591                 |   |
| Retained earnings (deficit)                                                                                                        |   | (4,311              | )         | (5,159                 | )      |
| Accumulated other comprehensive income                                                                                             |   | 1,723               |      | 3,578                  |   |
| Less: Treasury stock, at cost, 149,358  shares in 2003 and 126,717 shares in 2002                                                  |   | (2,310              | )         | (1,763                 | )      |
| Total shareholders’ equity                                                                                                    |   | 80,035              |      | 81,247                 |   |
| Total liabilities and shareholders’ equity                                                                                    |   | $                   | 1,004,753 |                   | $      | 951,174 |   |

 

The accompanying notes are anintegral part of these financial statements.

 

4

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SUN BANCORP, INC.

CONSOLIDATEDSTATEMENT OF INCOME

(UNAUDITED)

 
| **(In Thousands, Except for Per Share Data)**                   |   | **For the  Three Months Ended  March 31,** |   |
|-----------------------------------------------------------------|--------|--------------------------------------------|--------|
|                                                            |   | **2003**                                   |   | **2002** |   |
|                                                            |   |                                       |   |   |   |
| Interest and dividend income:                                   |   |                                       |   |   |   |
| Interest and fees on loans                                      |   | $                                          | 9,695  |   | $ | 9,694 |   |
| Income from investment securities:                              |   |                                       |   |   |   |
| Taxable                                                         |   | 2,299                                      |   | 3,549 |   |
| Tax exempt                                                      |   | 231                                        |   | 260 |   |
| Dividends                                                       |   | 111                                        |   | 134 |   |
| Interest on deposits in banks                                   |   | 52                                         |   | 104 |   |
| Total interest and dividend income                              |   | 12,388                                     |   | 13,741 |   |
|                                                            |   |                                       |   |   |   |
| Interest expense:                                               |   |                                       |   |   |   |
| Interest on deposits                                            |   | 3,127                                      |   | 4,000 |   |
| Interest on short-term borrowings                               |   | 107                                        |   | 72 |   |
| Interest on other borrowed funds                                |   | 3,138                                      |   | 3,153 |   |
| Interest on subordinated debentures                             |   | 468                                        |   | 480 |   |
|                                                            |   |                                       |   |   |   |
| Total interest expense                                          |   | 6,840                                      |   | 7,705 |   |
|                                                            |   |                                       |   |   |   |
| Net interest income                                             |   | 5,548                                      |   | 6,036 |   |
|                                                            |   |                                       |   |   |   |
| Provision for loan and lease losses                             |   | 405                                        |   | 405 |   |
|                                                            |   |                                       |   |   |   |
| Net interest income, after provision for  loan and lease losses |   | $                                          | 5,143  |   | $ | 5,631 |   |

 

5

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| **(In Thousands, Except for Per Share Data)**                 |   | **For the  Three Months Ended  March 31,** |   |
|---------------------------------------------------------------|--------|--------------------------------------------|--------|
|                                                          |   | **2003**                                   |   | **2002** |   |
| Non-interest income:                                          |   |                                       |   |   |   |
| Service charges on deposit accounts                           |   | $                                          | 845    |   | 520 |   |
| Trust income                                                  |   | 219                                        |   | 154 |   |
| Net security gains                                            |   | 1,496                                      |   | 95 |   |
| Income from investment product sales                          |   | 24                                         |   | 105 |   |
| Bank owned life insurance                                     |   | 325                                        |   | 45 |   |
| Income from insurance subsidiary                              |   | 23                                         |   | 30 |   |
| Gain on sale of loans                                         |   | 261                                        |   | 28 |   |
| Other income                                                  |   | 697                                        |   | 143 |   |
| Total non-interest income                                     |   | 3,890                                      |   | 1,120 |   |
|                                                          |   |                                       |   |   |   |
| Non-interest expense:                                         |   |                                       |   |   |   |
| Salaries and employee benefits                                |   | 3,166                                      |   | 2,804 |   |
| Net occupancy expenses                                        |   | 383                                        |   | 274 |   |
| Furniture and equipment expenses                              |   | 487                                        |   | 397 |   |
| Expenses of insurance subsidiary                              |   | 6                                          |   | 43 |   |
| Other expenses                                                |   | 2,521                                      |   | 1,382 |   |
| Total non-interest expenses                                   |   | 6,563                                      |   | 4,900 |   |
|                                                          |   |                                       |   |   |   |
| Income before income tax provision                            |   | 2,470                                      |   | 1,851 |   |
| Income tax provision                                          |   | 436                                        |   | 299 |   |
| Net income                                                    |   | $                                          | 2,034  |   | $ | 1,552 |   |
|                                                          |   |                                       |   |   |   |
| PER SHARE DATA                                                |   |                                       |   |   |   |
|                                                          |   |                                       |   |   |   |
| Net income per share – Basic                             |   | $                                          | 0.28   |   | $ | 0.22 |   |
|                                                          |   |                                       |   |   |   |
| Weighted average number of shares  outstanding – Basic   |   | 7,182,149                                  |   | 7,142,654 |   |
|                                                          |   |                                       |   |   |   |
| Net income per share – Diluted                           |   | $                                          | 0.28   |   | $ | 0.22 |   |
|                                                          |   |                                       |   |   |   |
| Weighted average number of shares  outstanding – Diluted |   | 7,200,970                                  |   | 7,163,900 |   |
|                                                          |   |                                       |   |   |   |
| Dividends paid                                                |   | $                                          | 0.165  |   | $ | 0.15 |   |

 

The accompanying notes are anintegral part of these financial statements.

 

6

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SUN BANCORP, INC.CONSOLIDATED STATEMENT OF CASH FLOWS(UNAUDITED)

 
| **(In Thousands)**                                                             |   | **For the  Three Months  Ended March 31,** |   |
|--------------------------------------------------------------------------------|--------|--------------------------------------------|--------|
|                                                                           |   | **2003**                                   |   | **2002** |   |
| Cash flows from operating activities:                                          |   |                                       |   |   |   |
| Net income                                                                     |   | $                                          | 2,034  |   | $ | 1,552 |   |
| Adjustments to reconcile net income to net  cash used in operating activities: |   |                                       |   |   |   |
| Provision for loan and lease losses                                            |   | 405                                        |   | 405 |   |
| Provision for depreciation                                                     |   | 257                                        |   | 256 |   |
| Amortization and accretion of securities,  net                                 |   | 263                                        |   | 316 |   |
| Net security gains                                                             |   | (1,496                                     | )      | (95 | ) |
| Increase in accrued interest and other  assets                                 |   | (1,454                                     | )      | (19,812 | ) |
| Decrease in accrued interest and other  liabilities                            |   | (4,418                                     | )      | (838 | ) |
| Net cash used in operating activities                                          |   | (4,409                                     | )      | (18,216 | ) |
|                                                                           |   |                                       |   |   |   |
| Cash flows from investing activities:                                          |   |                                       |   |   |   |
| Proceeds from sales of investment  securities                                  |   | 37,782                                     |   | 837 |   |
| Proceeds from maturities of investment  securities                             |   | 24,814                                     |   | 23,766 |   |
| Purchases of investment securities                                             |   | (123,902                                   | )      | (30 | ) |
| Cash paid for acquisitions                                                     |   | (36                                        | )      | — |   |
| Net increase in loans                                                          |   | (6,047                                     | )      | (32,119 | ) |
| Purchases of investments in limited  partnerships                              |   | —                                     |   | (25 | ) |
| Capital expenditures                                                           |   | (974                                       | )      | (167 | ) |
| Net cash (used in) provided by investing  activities                           |   | (68,363                                    | )      | (7,638 | ) |
|                                                                           |   |                                       |   |   |   |
| Cash flows from financing activities:`                                         |   |                                       |   |   |   |
| Net increase in deposits                                                       |   | 10,587                                     |   | 2,877 |   |
| Net increase in short-term borrowings                                          |   | 36,675                                     |   | 98 |   |
| Net increase in long-term borrowings                                           |   | 11,900                                     |   | 98 |   |
| Cash dividends paid                                                            |   | (1,186                                     | )      | (1,070 | ) |
| Proceeds from sale of stock for employee  benefits program                     |   | 221                                        |   | 10 |   |
| Purchase of treasury stock                                                     |   | (898                                       | )      | (100 | ) |
| Net cash provided by financing activities                                      |   | 57,299                                     |   | 1,815 |   |
|                                                                           |   |                                       |   |   |   |
| Net increase in cash and cash equivalents                                      |   | (15,473                                    | )      | (24,139 | ) |
| Cash and cash equivalents at beginning of  period                              |   | 41,569                                     |   | 44,983 |   |
| Cash and cash equivalents at end of period                                     |   | $                                          | 26,096 |   | $ | 20,844 |   |

 

7

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| **(In Thousands)**                                 |   | **For the Three Months  Ended March 31,** |   |
|----------------------------------------------------|--------|-------------------------------------------|--------|
|                                               |   | **2003**                                  |   | **2002** |   |
|                                               |   |                                      |   |   |   |
| Supplemental disclosure of cash flow  information: |   |                                      |   |   |   |
|                                               |   |                                      |   |   |   |
| Cash paid during the period for:                   |   |                                      |   |   |   |
|                                               |   |                                      |   |   |   |
| Interest                                           |   | $                                         | 7,199  |   | $ | 8,358 |   |
|                                               |   |                                      |   |   |   |
| Income taxes                                       |   | $                                         | — |   | $ | 750 |   |

 

Loans with anestimated value of  $147,000 and$154,000 were reclassified to foreclosed assets held for sale during thethree-month periods ended March 31, 2003 and 2002, respectively.

 

Theaccompanying notes are an integral part of these financial statements.

 

8

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SUN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Forward-LookingStatements:

 

Management of the Corporationhas made forward-looking statements in this Form 10-Q.  These forward-looking statements are subjectto risks and uncertainties. Forward-looking statements include information concerning possible or assumedfuture results of operations of the Corporation and its subsidiaries.  When words such as “believes,” “expects,”“anticipates” or similar expressions occur in the Form 10-Q, management ismaking forward-looking statements.

 

Readers should note that manyfactors, some of which are discussed elsewhere in this report and in thedocuments that management incorporates by reference, could affect the futurefinancial results of the Corporation and its subsidiaries, both individuallyand collectively, and could cause those results to differ materially from thoseexpressed in the forward-looking statements contained or incorporated byreference in this Form 10-Q.  Thesefactors include:

 

•                                          operating,legal and regulatory risks;

 

•                                          economic,political and competitive forces affecting banking, securities, assetmanagement and credit services businesses; and

 

•                                          therisk that management’s analysis of these risks and forces could be incorrectand/or that the strategies developed to address them could be unsuccessful.

 

The Corporation undertakes noobligation to publicly revise or update these forward-looking statements toreflect events or circumstances that arise after the date of this report.  Readers should carefully review the riskfactors described in other documents that Sun files periodically with theSecurities and Exchange Commission.

 

Note 1 — Basis of InterimPresentation

 

Theconsolidated financial statements include the accounts of Sun Bancorp, Inc.,and its wholly-owned subsidiaries: SunBank, SUBI Investment Company, BeaconLife Insurance Company, and Sun Bancorp Statutory Trust I.  Sun also holds thirty percent ownership inSun Abstract and Settlement Services. The transactions of Beacon Life Insurance Company and Sun Abstract andSettlement Services are not material to the consolidated financialstatements.  All significantintercompany balances and transactions have been eliminated in consolidation.

 

Theaccompanying unaudited consolidated financial statements for the interimperiods do not include all of the information and footnotes required bygenerally accepted accounting principles. However, in the opinion of management, all adjustments necessary for afair presentation of the results of the interim period have been included.  Operating results for the three months endedMarch 31, 2003 are not necessarily indicative of the results that may beexpected for the year ended December 31, 2003.

 

The accountingpolicies followed in the presentation of interim financial results are the sameas those followed on an annual basis. These policies are presented on pages 18 thru 20 of the 2002 AnnualReport to Shareholders.

 

9

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Note 2 – Net Income PerShare

 

Net income pershare is computed based on the weighted average number of shares of stockoutstanding for each period presented. Statement of Financial Accounting Standards No. 128, “Earnings PerShare,” requires presentation of two amounts, basic and diluted net income pershare.  Basic earnings per share calculatesnet income divided by the average number of shares outstanding for theperiod.  Diluted earnings per sharecalculates net income divided by the sum of the average number of sharesoutstanding and the effect that, if all were exercised, the granted stockoptions would have on the number of shares outstanding for the period.

 

The followingdata shows the amounts used in computing net income per share and the weightedaverage number of shares of dilutive stock options for the periods ended March31, 2003 and 2002:

 
|                                |   | **For the  Three Months Ended March 31,** |      |
|-------------------------------------|--------|-------------------------------------------|-----------|
|                                |   | **Income  Numerator**                     |      | **Common  Shares  Denominator** |   | **Net  Income Per  Share** |   |
|                                |   |                                      |      |   |   |   |   |
| 2003                                |   |                                      |      |   |   |   |   |
| Net income per share – Basic   |   | $                                         | 2,034,000 |   | 7,182,149 |   | $ | 0.28 |   |
| Dilutive effect of stock options    |   |                                      |      | 18,821 |   |   |   |
| Net income per share – Diluted |   | $                                         | 2,034,000 |   | 7,200,970 |   | $ | 0.28 |   |
|                                |   |                                      |      |   |   |   |   |
| 2002                                |   |                                      |      |   |   |   |   |
| Net income per share – Basic   |   | $                                         | 1,552,000 |   | 7,142,654 |   | $ | 0.22 |   |
| Dilutive effect of stock options    |   |                                      |      | 21,246 |   |   |   |
| Net income per share – Diluted |   | $                                         | 1,552,000 |   | 7,163,900 |   | $ | 0.22 |   |

 

10

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Note 3 – ConsolidatedStatement of Changes in Shareholder’s Equity

 

The purpose ofreporting comprehensive income is to report a measure of all changes in SunBancorp, Inc.’s equity resulting from economic events other than transactionswith shareholders in their capacity as shareholders.  For Sun Bancorp, Inc., “comprehensive income” includestraditional income statement amounts as well as unrealized gains and losses oncertain investments in debt and equity securities (i.e. available-for-salesecurities).  Unrealized gains andlosses are part of comprehensive income, therefore comprehensive income mayvary substantially between reporting periods due to fluctuations in the marketprices of securities held.

 

**For theyears ended December 31, 2001, 2002 and the three months ended March 31, 2003**

*(InThousands, Except for Share Data)*

 
|                                                                                                    |   | **Common Stock** |       | **Retained  Earnings  (Deficit)** |       | **Accumulated  Other  Comprehensive  Income(Loss)** |       | **Treasury  Stock** |       | **Total  Shareholders  Equity** |       |
|---------------------------------------------------------------------------------------------------------|--------|------------------|------------|-----------------------------------|------------|-----------------------------------------------------|------------|---------------------|------------|---------------------------------|------------|
|                                                                                                    |   | **Shares**       |       | **Amount**                        |       |                                                |
|                                                                                                    |   |             |       |                              |       |                                                |       |                |       |                            |       |   |   |
| Balance, December 31, 2000                                                                              |   | 7,227            |       | 81,632                            |       | (11,177                                             | )          | (1,591              | )          | (6,337                          | )          | 62,527 |   |
| Comprehensive income:                                                                                   |   |             |       |                              |       |                                                |       |                |       |                            |       |   |   |
| Net income                                                                                              |   | —           |       | —                            |       | 8,350                                               |       | —              |       | —                          |       | 8,350 |   |
| Unrealized gains on securities available  for sale, net of reclassification adjustments and tax effects |   | —           |       | —                            |       | —                                              |       | 3,660               |       | —                          |       | 3,660 |   |
| Total comprehensive income                                                                              |   |             |       |                              |       |                                                |       |                |       |                            |       | 12,010 |   |
|                                                                                                    |   |             |       |                              |       |                                                |       |                |       |                            |       |   |   |
| Stock issued:                                                                                           |   |             |       |                              |       |                                                |       |                |       |                            |       |   |   |
| Employee benefit plans                                                                                  |   | 9                |       | 123                               |       | —                                              |       | —              |       | —                          |       | 123 |   |
| Purchase of Guaranty Bank, N.A. (553,558  treasury shares)                                              |   | —           |       | 1,810                             |       | —                                              |       | —              |       | 6,388                           |       | 8,198 |   |
| Purchase of treasury stock (80,535 shares)                                                              |   | —           |       | —                            |       | —                                              |       | —              |       | (1,213                          | )          | (1,213 | ) |
| Cash dividends declared, $.60 per share                                                                 |   | —           |       | —                            |       | (4,134                                              | )          | —              |       | —                          |       | (4,134 | ) |
| Balance, December 31, 2001                                                                              |   | 7,236            |       | 83,565                            |       | (6,961                                              | )          | 2,069               |       | (1,162                          | )          | 77,511 |   |
| Comprehensive income:                                                                                   |   |             |       |                              |       |                                                |       |                |       |                            |       |   |   |
| Net income                                                                                              |   | —           |       | —                            |       | 6,416                                               |       | —              |       | —                          |       | 6,416 |   |
| Unrealized gains on securities available  for sale, net of reclassification adjustments and tax effects |   | —           |       | —                            |       | —                                              |       | 1,509               |       | —                          |       | 1,509 |   |
| Total comprehensive income                                                                              |   |             |       |                              |       |                                                |       |                |       |                            |       | 7,925 |   |
|                                                                                                    |   |             |       |                              |       |                                                |       |                |       |                            |       |   |   |
| Stock issued:                                                                                           |   |             |       |                              |       |                                                |       |                |       |                            |       |   |   |
| Employee benefit plans                                                                                  |   | 63               |       | 1,007                             |       | —                                              |       | —              |       | —                          |       | 1,007 |   |
| Purchase of treasury stock (33,300 shares)                                                              |   | —           |       | —                            |       | —                                              |       | —              |       | (601                            | )          | (601 | ) |
| Cash dividends declared, $.66 per share                                                                 |   | —           |       | —                            |       | (4,614                                              | )          | —              |       | —                          |       | (4,614 | ) |
| Tax benefit of exercised stock options                                                                  |   | —           |       | 19                                |       | —                                              |       | —              |       | —                          |       | 19 |   |
| Balance, December 31, 2002                                                                              |   | 7,299            |       | 84,591                            |       | (5,159                                              | )          | 3,578               |       | (1,763                          | )          | 81,247 |   |
| **Comprehensive income:**                                                                               |   |             | ** ** |                              | ** ** |                                                | ** ** |                | ** ** |                            | ** ** |   | ** ** |
| Net income                                                                                              |   | **—**       | ** ** | **—**                        | ** ** | **2,034**                                           | ** ** | **—**          | ** ** | **—**                      | ** ** | **2,034** | ** ** |
| Unrealized gains on securities available  for sale, net of reclassification adjustments and tax effects |   | **—**       | ** ** | **—**                        | ** ** | **—**                                          | ** ** | **(1,855**          | **)**      | **—**                      | ** ** | **(1,855** | **)** |
| **Total comprehensive  income**                                                                         |   |             | ** ** |                              | ** ** |                                                | ** ** |                | ** ** |                            | ** ** | **179** | ** ** |
|                                                                                                    |   |             | ** ** |                              | ** ** |                                                | ** ** |                | ** ** |                            | ** ** |   | ** ** |
| Stock issued:                                                                                           |   |             | ** ** |                              | ** ** |                                                | ** ** |                | ** ** |                            | ** ** |   | ** ** |
| Employee benefit plans                                                                                  |   | **18**           | ** ** | **342**                           | ** ** | **—**                                          | ** ** | **—**          | ** ** | **—**                      | ** ** | **342** | ** ** |
| Purchase of treasury stock (47,750 shares)                                                              |   | **—**       | ** ** | **—**                        | ** ** | **—**                                          | ** ** | **—**          | ** ** | **(547**                        | **)**      | **(547** | **)** |
| Cash dividends declared, $.165 per share                                                                |   | **—**       | ** ** | **—**                        | ** ** | **(1,186**                                          | **)**      | **—**          | ** ** | **—**                      | ** ** | **(1,186** | **)** |
| Tax benefit of exercised stock options                                                                  |   | **—**       | ** ** |                              | ** ** | **—**                                          | ** ** | **—**          | ** ** | **—**                      | ** ** | **—** | ** ** |
| **Balance, March 31, 2003**                                                                             |   | **7,317**        | ** ** | **84,933**                        | ** ** | **(4,311**                                          | **)**      | **1,723**           | ** ** | **(2,310**                      | **)**      | **80,035** | ** ** |

 

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Note 4 – InvestmentSecurities

 

The amortizedcost and fair value of investment securities at March 31, 2003 and December 31,2002 were as follows:

 
| **(In Thousands)**                                |   | **March 31,  2003** |    |
|---------------------------------------------------|--------|---------------------|---------|
|                                              |   | **Amortized  Cost** |    | **Gross  Unrealized  Gains** |   | **Gross  Unrealized  Losses** |   | **Fair  Value** |   |
|                                              |   |                |    |   |   |   |   |   |   |
|                                              |   |                |    |   |   |   |   |   |   |
| Debt securities:                                  |   |                |    |   |   |   |   |   |   |
| Obligations of U.S. government agencies           |   | $                   | 227,686 |   | $ | 2,976 |   | $ | (1,419 | ) | $ | 229,243 |   |
| Obligations of states and political  subdivisions |   | 18,186              |    | 1,095 |   | — |   | 19,281 |   |
| Other corporate                                   |   | 13,467              |    | 59 |   | (113 | ) | 13,413 |   |
| Total debt securities                             |   | $                   | 259,339 |   | $ | 4,130 |   | $ | (1,532 | ) | $ | 261,937 |   |
|                                              |   |                |    |   |   |   |   |   |   |
| Equity securities:                                |   |                |    |   |   |   |   |   |   |
| Marketable equity securities                      |   | $                   | 3,905   |   | $ | 226 |   | $ | (213 | ) | $ | 3,918 |   |
| Restricted equity securities                      |   | 13,312              |    | — |   | — |   | 13,312 |   |
| Total equity securities                           |   | $                   | 17,217  |   | $ | 226 |   | $ | (213 | ) | $ | 17,230 |   |
|                                              |   |                |    |   |   |   |   |   |   |
| Total                                             |   | $                   | 276,556 |   | $ | 4,356 |   | $ | (1,745 | ) | $ | 279,167 |   |

 
|                                              |   | **December 31, 2002** |    |
|---------------------------------------------------|--------|-----------------------|---------|
|                                              |   | **Amortized  Cost**   |    | **Gross  Unrealized  Gains** |   | **Gross  Unrealized  Losses** |   | **Fair  Value** |   |
| Debt securities:                                  |   |                  |    |   |   |   |   |   |   |
| Obligations of U.S. government agencies           |   | $                     | 173,552 |   | $ | 4,584 |   | $ | (133 | ) | $ | 178,003 |   |
| Obligations of states and political  subdivisions |   | 19,767                |    | 836 |   | — |   | 20,603 |   |
| Other corporate                                   |   | 5,575                 |    | 388 |   | (75 | ) | 5,888 |   |
| Total debt securities                             |   | 198,894               |    | 5,808 |   | (208 | ) | 204,494 |   |
|                                              |   |                  |    |   |   |   |   |   |   |
| Equity securities:                                |   |                  |    |   |   |   |   |   |   |
| Marketable equity securities                      |   | 3,111                 |    | 136 |   | (315 | ) | 2,932 |   |
| Restricted equity securities                      |   | 12,012                |    | — |   | — |   | 12,012 |   |
| Total equity securities                           |   | 15,123                |    | 136 |   | (315 | ) | 14,944 |   |
|                                              |   |                  |    |   |   |   |   |   |   |
| Total                                             |   | $                     | 214,017 |   | $ | 5,944 |   | $ | (523 | ) | $ | 219,438 |   |

 

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Note 5 – Loans

 

The balancesfor principal loan categories are as follows:

 
|                                        |   | **March 31,  2003** |    | **December  31, 2002** |   |
|---------------------------------------------|--------|---------------------|---------|------------------------|--------|
|                                        |   |                |    |                   |   |
| Real estate – Mortgage                 |   | $                   | 402,393 |                   | $      | 404,350 |   |
| Real estate - Construction                  |   | 18,231              |    | 17,721                 |   |
| Agricultural                                |   | 172                 |    | 138                    |   |
| Commercial and industrial                   |   | 60,400              |    | 54,624                 |   |
| Lease – Auto                           |   | 35,025              |    | 29,698                 |   |
| Lease - Equipment                           |   | 5,885               |    | 4,955                  |   |
| Individual                                  |   | 81,726              |    | 85,920                 |   |
| Other                                       |   | 589                 |    | 328                    |   |
| Total                                       |   | $                   | 604,421 |                   | $      | 597,734 |   |
|                                        |   |                |    |                   |   |
| Less:                                       |   |                |    |                   |   |
| Unearned income & deferred loan fees    |   | (8,815              | )       | (7,945                 | )      |
| Unamortized net discount on purchased loans |   | (119                | )       | (64                    | )      |
| ALLL                                        |   | (6,478              | )       | (6,206                 | )      |
| Net Loans                                   |   | $                   | 589,009 |                   | $      | 583,519 |   |

 

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Note 5 – Stock Options

 

Sun has threecommon stock plans for employees and directors.  The 1998 Stock Incentive Plan, administered by a Board ofDirectors committee of independent directors, allows for 716,625 shares ofcommon stock for key officers and other management employees in the form ofqualified options, non qualified options, stock appreciation rights, orrestrictive stock.  The 1998 IndependentDirectors Stock Option Plan allows 115,763 shares of common stock to be issuedfor non-employee directors.  Optionsunder those plans expire ten years after the grant date.  Both of these plans terminate in 2008.

 

The 1998Employee Stock Purchase Plan, which permits all employees to purchase common stockat an option price per share not less than 85% of the market value on theexercise date was allocated 248,063 shares. Options granted to date have been awarded at 90% of the market value onthe exercise date.  Each option underthe 1998 Employee Stock Purchase Plan expires no later than 5 years from thegrant date.  This plan terminates in2008.

 

Sun appliesAccounting Principles Board Opinion 25 and related interpretations to accountfor its common stock plans. Accordingly, Sun has not recognized compensation expense for theplans.  Had compensation cost beendetermined based on fair values at the grant dates (pursuant to SFAS 123),Sun’s net income and earnings per share for the three months ended March 31, 2003and 2002

 

|                       |   | **2003** |      | **2002** |   |
|----------------------------|--------|----------|-----------|----------|--------|
| Net Income:                |   |     |      |     |   |
| As reported                |   | $        | 2,034,000 |     | $      | 1,552,000 |   |
| Pro forma                  |   | $        | 2,031,000 |     | $      | 1,419,000 |   |
|                       |   |     |      |     |   |
| Earnings per share - Basic |   |     |      |     |   |
| As reported                |   | $        | 0.28      |     | $      | 0.22 |   |
| Pro forma                  |   | $        | 0.28      |     | $      | 0.20 |   |

 

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SIGNATURES

 

Pursuant tothe requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 
|   | Sun Bancorp, Inc.                                                    |
|--------|----------------------------------------------------------------------|
|   |                                                                 |
| Date   | May 19, 2003                                                         |   | /s/  Robert J. McCormack |
|   | Robert J. McCormack                                                  |
|   | President and Chief Executive Officer  (Principal Executive Officer) |
|   |                                                                 |
|   |                                                                 |
|   | /s/  Wilmer D. Leinbach                                         |
|   | Wilmer D. Leinbach                                                   |
|   | Chief Financial Officer  (Principal Financial Officer)               |
|        |                                                                      |  |  |

 

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