U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE) FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
--------- ---------
Commission File No. 333-30182
SUN BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
South Carolina 58-2466380
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
4367 RIVERWOOD DRIVE
MURRELLS INLET, SC 29576-1359
(Address of principal executive
offices, including zip code)
(843) 357-7007
(Registrant's telephone number, including area code)
---------------------------------------------------
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.
YES [ ] NO [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
715,000 SHARES OF COMMON STOCK, NO STATED PAR VALUE ON OCTOBER 25, 2001
Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ]
PAGE 1 OF 14
EXHIBIT INDEX ON PAGE 2
SUN BANCSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
INDEX
PART I. FINANCIAL RESULTS Page No.
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -- September 30, 2001 and December 31, 2000 .................... 3
Condensed Consolidated Statements of Income -- Nine months ended September 30, 2001 and 2000 and three
months ended September 30, 2001 and 2000 ............................................................ 4
Condensed Consolidated Statement of Shareholders' Equity and Comprehensive Income --
Nine months ended September 30, 2001 and 2000 ...................................................... 5
Condensed Consolidated Statements of Cash Flows -- Nine months ended September 30, 2001 and 2000 ..... 6
Notes to Condensed Consolidated Financial Statements ................................................. 7
Item 2. Management's Discussion and Analysis or Plan of Operation ............................................. 8-12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ...................................................................... 13
(a) Exhibits ......................................................................................... 13
(b) Reports on Form 8-K .............................................................................. 13
SUN BANCSHARES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2001 2000
------------ -----------
(Unaudited)
ASSETS:
Cash and cash equivalents:
Cash and due from banks $ 1,009,056 $ 163,515
Federal funds sold 5,794,000 6,010,000
------------ -----------
Total cash and cash equivalents 6,803,056 6,173,515
------------ -----------
Investment securities:
Securities available-for-sale 3,147,005 --
Nonmarketable equity securities 195,000 195,000
------------ -----------
Total investment securities 3,342,005 195,000
Loans receivable: 11,933,533 905,147
Less allowance for loan losses (120,000) (15,000)
------------ -----------
Loans, net 11,813,533 890,147
Premises, furniture & equipment, net 1,661,773 573,799
Accrued interest receivable 93,385 4,115
Other assets 510,330 191,800
------------ -----------
Total assets $ 24,224,082 $ 8,028,376
============ ===========
LIABILITIES:
Deposits:
Noninterest-bearing transaction accounts $ 3,490,030 $ 207,226
Interest-bearing transaction accounts 861,238 170,840
Savings 4,057,091 1,175,203
Time deposits $100, 000 and over 4,972,842 166,967
Other time deposits 5,053,726 219,107
------------ -----------
Total deposits 18,434,927 1,939,343
------------ -----------
Accrued interest payable 125,698 2,127
Other liabilities 73,811 27,307
------------ -----------
Total liabilities 18,634,436 1,968,777
------------ -----------
SHAREHOLDERS' EQUITY:
Preferred stock, par value not stated: 2,000,000 shares authorized -- --
and unissued
Common stock, par value not stated; 10,000,000 shares authorized, 6,779,216 6,779,216
715,000 shares issued and outstanding
Retained earnings (deficit) (1,220,230) (719,617)
Accumulated other comprehensive income 30,660 --
------------ -----------
Total shareholders' equity 5,589,646 6,059,599
------------ -----------
Total liabilities and shareholders' equity $ 24,224,082 $ 8,028,376
============ ===========
3
SUN BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Nine Months Ended September 30, Three Months Ended September 30,
------------------------------- --------------------------------
INTEREST INCOME 2001 2000 2001 2000
----------- --------- --------- ---------
Loans, including fees $ 452,813 -- $ 230,560 --
Investment securities, taxable 78,262 -- 34,225 --
Nonmarketable equity securities 5,850 -- 5,850 --
Federal funds sold 179,728 -- 58,116 --
Other -- 22 -- --
----------- --------- --------- ---------
Total 716,653 -- 328,751 --
----------- --------- --------- ---------
INTEREST EXPENSE
Time deposits $100,000 and over 102,306 -- 68,730 --
Other deposits 150,764 -- 85,301 --
Other -- 40,696 -- 27,864
----------- --------- --------- ---------
Total 253,070 40,696 154,031 27,864
----------- --------- --------- ---------
NET INTEREST INCOME (LOSS) 463,583 (40,696) 174,720 (27,864)
----------- --------- --------- ---------
Provision for loan losses 105,000 -- 35,000 --
----------- --------- --------- ---------
NET INTEREST INCOME (LOSS) AFTER PROVISION FOR
LOAN LOSSES 358,583 (40,696) 139,720 (27,864)
----------- --------- --------- ---------
OTHER INCOME
Service charges on deposit accounts 18,393 -- 9,166 --
Residential mortgage origination fees 14,058 -- 10,234 --
Other service charges, commissions, and fees 10,305 -- 6,039 --
----------- --------- --------- ---------
Total 42,756 -- 25,439 --
----------- --------- --------- ---------
OTHER OPERATING EXPENSES
Salaries and employee benefits 529,824 178,647 209,921 71,888
Occupancy expense 196,393 -- 62,160 --
Furniture and fixture expense 59,273 -- 21,579 --
Other operating expenses 415,309 191,511 153,787 77,052
----------- --------- --------- ---------
Total 1,200,799 370,158 447,447 148,940
----------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (799,460) (410,854) (282,288) (176,804)
Income tax expense (benefit) (298,847) -- (112,762) --
----------- --------- --------- ---------
NET INCOME (LOSS) $ (500,613) $(410,854) $(169,526) $(176,804)
=========== ========= ========= =========
EARNINGS PER SHARE
Basic earnings (losses) per share $ (0.70) $ (0.57) $ (0.24) $ (0.25)
Diluted earnings (losses) per share $ (0.70) $ (0.57) $ (0.24) $ (0.25)
4
SUN BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE
INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
(UNAUDITED)
Common Stock Accumulated Other
------------------------------ Retained Earnings Comprehensive
Shares Amount (Deficit) Income Total
------- ----------- ----------------- ------------------ ---------
BALANCE,
DECEMBER 31, 2000 715,000 $ 6,779,216 $ (719,617) $ -- $6,059,599
Net income (loss) for (500,613) (500,613)
the period
Other comprehensive
income, net of tax $18,007 30,660 30,660
------- ----------
Comprehensive income (469,953)
-------- ----------- ----------- ------- ----------
BALANCE,
SEPTEMBER 30, 2001 715,000 $ 6,779,216 $(1,220,230) $30,660 $5,589,646
======== =========== =========== ======= ==========
5
SUN BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30,
--------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 2001 2000
------------ ---------
Net income (loss)
Adjustments to reconcile net income (loss) to net cash (used) provided $ (500,613) $(410,832)
by operating activities:
Depreciation and amortization 77,624 --
Provision for loan loss 105,000 --
Accretion and premium amortization (1,725) --
Deferred income tax benefit (298,848) --
Increase in interest receivable (89,270) --
Increase in other assets (19,682) --
Increase in interest payable 123,570 --
Increase in other liabilities 28,498 20,859
------------ ---------
Net cash used by operating activities (575,446) (389,973)
------------ ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities available-for-sale (4,092,753) --
Maturities of securities available-for-sale 996,140 --
Net increase in loans to customers (11,028,386) --
Purchases of premises and equipment (1,165,598) (286,657)
Increase in other investing activities -- (49,166)
------------ ---------
Net cash used by investing activities (15,290,597) (335,823)
------------ ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, interest-bearing transaction accounts 6,855,090 --
and savings accounts
Net increase in certificates of deposit and other time deposits 9,640,494 --
Proceeds from borrowings -- 810,000
Stock offerings costs -- (58,833)
------------ ---------
Net cash provided by financing activities 16,495,584 751,167
------------ ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 629,541 25,371
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD 6,173,515 10,750
------------ ---------
CASH AND CASH EQUIVALENTS END OF PERIOD $ 6,803,056 $ 36,121
============ =========
Cash paid during the period for:
Income taxes $ -- $ --
Interest $ 129,499 $ 40,696
6
SUN BANCSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with the
requirements for interim financial statements and, accordingly, they are
condensed and omit disclosures which would substantially duplicate those
contained in the most recent annual report to shareholders on Form 10K. The
financial statements as of September 30, 2001 and for the interim periods ended
September 30, 2001 and 2000 are unaudited and, in the opinion of management,
include all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation. The financial information as of December 31,
2000 has been derived from the audited financial statements as of that date. For
further information, refer to the financial statements and the notes included in
Sun Bancshares, Inc.'s 2000 Form 10K.
NOTE 2 - EARNINGS PER SHARE
Net income (loss) per share - basic is computed by dividing net income (loss) by
the weighted average number of common shares outstanding. Net income (loss) per
share - diluted is computed by dividing net income (loss) by the weighted
average number of common shares outstanding and dilutive common share
equivalents using the treasury stock method. Dilutive common share equivalents
include common shares issuable upon exercise of outstanding stock options. There
were no dilutive common share equivalents outstanding during the first nine
months of 2001; therefore basic earnings per share and diluted earnings per
share were the same.
NOTE 3 - COMPREHENSIVE INCOME
Comprehensive income includes net income (loss) and other comprehensive income,
which is defined as non-owner related transactions in equity. The following
table sets forth the amounts of other comprehensive income included in equity
along with the related tax effect for the nine and three months period ended
September 30, 2001:
Pre-tax (Expense) Net-of-tax
Amount Benefit Amount
-------- -------- ----------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period $ 48,667 $(18,007) $30,660
Plus: reclassification adjustment for gains (losses)
realized in net income -- -- --
-------- -------- -------
Net unrealized gains (losses) on securities
48,667 (18,007) 30,660
-------- -------- -------
Other comprehensive income $ 48,667 $(18,007) $30,660
======== ======== =======
Pre-tax (Expense) Net-of-tax
Amount Benefit Amount
-------- -------- ----------
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period $ 39,433 $(14,590) $24,843
Plus: reclassification adjustment for gains (losses)
realized in net income -- -- --
Net unrealized gains (losses) on securities
-------- -------- -------
39,433 (14,590) 24,843
-------- -------- -------
Other comprehensive income $ 39,433 $(14,590) $24,843
======== ======== =======
Accumulated other comprehensive income consists solely of the unrealized gain
(loss) on securities available-for-sale, net of the deferred tax effects.
7
SUN BANCSHARES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following is a discussion of our financial condition as of September 30,
2001 compared to December 31, 2000, and the results of operations for the three
and nine months ended September 30, 2001 compared to the three and nine months
ended September 30, 2000. These comments should be read in conjunction with our
condensed financial statements and accompanying footnotes appearing in this
report. It should be understood that this discussion is based on the Bank's
opening for business on November 15, 2000. This report contains "forward-looking
statements" relating to, without limitation, future economic performance, plans
and objectives of management for future operations, and projections of revenues
and other financial items that are based on the beliefs of our management, as
well as assumptions made by and information currently available to our
management. The words "expect", "estimate", "anticipate", and "believe", as well
as similar expressions, are intended to identify forward-looking statements. Our
actual results may differ materially from the results discussed in the
forward-looking statements, and our operating performance each quarter is
subject to various risks and uncertainties that are discussed in detail in our
filings with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income for the nine months ended September 30, 2001 was $463,583.
Interest income for the period totaled $716,653. Of this total, interest income
from loans, including fees was $452,813; interest income from federal fund sold
was $179,728; and interest income from investment securities and nonmarketable
securities totaled $78,262 and $5,850, respectively. The income was partially
offset by interest expense of $253,070. Interest expense consisted primarily of
interest on other deposits totaling $150,764 and interest expense from time
deposits $100,000 and over totaling $102,306 for the nine months ended September
30, 2001. The net interest margin realized on earning assets was 4.58% for the
nine months ended September 30, 2001 and the interest rate spread was 2.62% for
the nine months ended September 30, 2001. The net interest loss totaled $40,674
for the nine months ended September 30, 2000. This consisted primarily of
interest expense of $40,696 incurred on funds borrowed to organize and form the
Bank.
Net interest income for the three months ended September 30, 2001 was $174,720.
Interest income for the period totaled $328,751. Of this total, interest income
from loans, including fees was $230,560; interest income from federal funds sold
was $58,116; and interest income from investment securities and nonmarketable
securities totaled $34,225 and $5,850, respectively. Interest income was
partially offset by interest expense of $154,031. Interest expense consisted
primarily of interest on other deposits totaling $85,301 and interest expense
from time deposits $100,000 and over totaling $68,730 for the three months ended
September 30, 2001. The net interest loss totaled $27,864 for the three months
ended September 30, 2000. This consisted primarily of interest expense of
$27,864 incurred on funds borrowed to organize and form the Bank.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses is the charge to operating earnings that we
believe is necessary to maintain the allowance for possible loan losses at an
adequate level. For the nine and three months ended September 30, 2001, the
provision charged to expense was $105,000 and $35,000, respectively. This is a
result of our efforts to adjust the allowance for loan losses to match the
growth in the loan portfolio. There were no charges to the provision for loan
losses for the nine and three months ended September 30, 2000 since the SunBank
(the Bank) had not opened for business and no loans had been booked. There are
risks inherent in making all loans, including risks with respect to the period
of time over which loans may be repaid, risks resulting from changes in economic
and industry conditions, risks inherent in dealing with individual borrowers,
and, in the case of a collateralized loan, risks resulting from uncertainties
about the future value of the collateral. We maintain an allowance for loan
losses based on, among other things, historical experience, an evaluation of
economic conditions, and regular reviews of delinquencies and loan portfolio
quality. Our judgment about the adequacy of the allowance is based upon a number
of assumptions about future events, which we believe to be reasonable, but which
may not prove to be accurate. Thus, there is a risk that charge-offs in future
periods could exceed the allowance for loan losses or that substantial
additional increases in the allowance for loan losses could be required.
Additions to the allowance for loan losses would result in a decrease of our net
income and, possibly, our capital.
8
SUN BANCSHARES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION -- continued
NONINTEREST INCOME
Noninterest income for the nine months ended September 30, 2001 totaled $42,756.
The primary source of this income was from service charges on deposit accounts
which totaled $18,393 for the nine months ended September 30, 2001. In addition,
residential mortgage origination fees, and other service charges, commissions,
and fees totaled $14,058 and $10,305, respectively, for the nine months ended
September 30, 2001. There were no sources of noninterest income during the nine
months ended September 30, 2000.
Noninterest income for the three months ended September 30, 2001 was $25,439.
The primary source of this income was from residential mortgage origination fees
which totaled $10,234 for the three months ended September 30, 2001. In
addition, service charges on deposits totaled $9,166 for the three months ended
September 30, 2001. There were no sources of noninterest income for the three
months ended September 30, 2000.
NONINTEREST EXPENSE
Total noninterest expense for the nine months ended September 30, 2001 was
$1,200,799. The primary component of noninterest expense was salaries and
employee benefits, which totaled $529,824 for the nine months ended September
30, 2001. Other operating expenses totaled $415,309; data processing fees
comprised $92,604 or 22.23% of this total. Occupancy expense totaled $196,393,
and furniture and equipment expense totaled $59,273 for the nine months ended
September 30, 2001. Noninterest expense for the nine months ended September 30,
2000 totaled $370,158. Of this total, $178,647 was for salaries and employee
benefits and $191,511 was for other operating expenses. All of these expenses
related to organizing and forming the Bank.
Total noninterest expense for the three months ended September 30, 2001 was
$447,447. The primary component of noninterest expense was salaries and employee
benefits, which totaled $209,921 for the three months ended September 30, 2001.
Other operating expenses totaled $153,787, occupancy expense totaled $62,160,
and furniture and equipment expense totaled $21,579 for the three months ended
September 30, 2001. Noninterest expenses for the three months ended September
30, 2000 totaled $148,940. Of this total, $71,888 was for salaries and benefits
and $77,052 was for other operating expenses. All of these expenses related to
organizing and forming the Bank.
INCOME TAXES
The income tax benefit for the nine months ended September 30, 2001 was $298,847
and was a result of our net operating loss. The benefit was based on an
effective tax rate of 37% for the nine months ended September 30, 2001. There
were no income taxes recorded during the nine months ended September 30, 2000,
the organization period.
The income tax benefit for the three months ended September 30, 2001 was
$112,762 and again was a result of our net operating loss. The benefit was based
on an effective tax rate of 39% for the three months ended September 30, 2001.
NET INCOME (LOSS)
The combination of the above factors resulted in a net loss for the nine months
ended September 30, 2001 of $500,613. The net loss before taxes was $799,460 and
was offset by an income tax benefit of $298,847. The net loss for the nine
months ended September 30, 2000 was $410,832. This consisted of expenses
associated with organizing and forming the Bank.
The combination of the above factors resulted in a net loss for the three months
ended September 30, 2001 of $169,526. The net loss before taxes was $282,288 and
was offset by an income tax benefit of $112,762. The net loss for the three
months ended September 30, 2000 was $176,804. This consisted of expenses
associated with organizing and forming the Bank.
9
SUN BANCSHARES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION -- continued
ASSETS AND LIABILITIES
The growth in assets and liabilities was significant in most areas since the
Bank opened for business on November 15, 2000. During the first nine months of
2001, total assets increased $16,195,706 or 201.73%, when compared to December
31, 2000. The primary source of growth in assets was gross loans which increased
$11,028,386 during the first nine months of 2001. Total deposits increased
$16,495,584 or 850.58% from the December 31, 2000 amount of $1,939,343. Within
the deposit area, other time deposits increased $4,834,619 or 2,206.51% from
December 31, 2000 to September 30, 2001. Time deposits $100,000 and over
increased $4,805,875 or 2,878.34% during the first nine months of 2001.
Noninterest-bearing deposits and savings deposits increased $3,282,804 and
$2,881,888 respectively, from December 31, 2000 to September 30, 2001.
SECURITIES AVAILABLE-FOR-SALE
Investment securities totaled $3,147,005 at September 30, 2001. All of our
marketable investment securities were designated as available-for-sale at
September 30, 2001.
NONMARKETABLE EQUITY SECURITIES
Nonmarketable equity securities include the cost of our investment in the stock
of the Federal Reserve Bank. The stock has no quoted market value and no ready
market exists. Investment in Federal Reserve Bank stock is required by law of
every national bank. At September 30, 2001 and December 31, 2000 our investment
in this stock totaled $195,000.
LOANS
We experienced significant growth in loans during the first nine months of 2001,
since the Bank had only been open for business 1.5 months at December 31, 2000.
Net loans increased $10,923,386 or 1,227.14%, during the period. As shown below,
the main component of growth in the loan portfolio was real estate-mortgage
which increased $5,150,179, or 2,441.88%, from December 31, 2000. Also,
commercial and industrial loans increased $4,056,353, or 1,019.61%. Balances
within the major loans receivable categories as of September 30, 2001 and
December 31, 2000 are as follows:
September 30, December 31,
2001 2000
------------- ------------
Real estate - construction $ 709,833 $ --
Real estate - mortgage 5,361,089 210,910
Commercial and industrial 4,454,186 397,833
Consumer and other 1,408,425 296,404
----------- --------
$11,933,533 $905,147
=========== ========
10
SUN BANCSHARES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION -- continued
RISK ELEMENTS IN THE LOAN PORTFOLIO
There were no risk elements identified in our loan portfolio as of September 30,
2001.
Activity in the Allowance for Loan Losses is as follows:
September 30,
2001
-------------
Balance, January 1, $ 15,000
Provision for loan losses for the period 105,000
Net loans (charged-off) recovered for the period --
-----------
Balance, end of period $ 120,000
===========
Gross loans outstanding, end of period $11,933,533
Allowance for loan losses to loans outstanding 1.01%
DEPOSITS
At September 30, 2001, total deposits increased by $16,495,584, or 850.58%, from
December 31, 2000. The largest increase was in other time deposits which
increased $4,834,619 or 2,206.51%, from December 31, 2000 to September 30, 2001.
Time deposits $100,000 and over increased $4,805,875, or 2,878.34% and
non-interest bearing demand deposits increased $3,282,804 or 1,584.17%.
Expressed as a percentage, total interest bearing deposits increased 762.81%.
Balances within the major deposit categories as of September 30, 2001 and
December 31, 2000 were as follows:
September 30, December 31,
2001 2000
------------- ------------
Noninterest-bearing demand deposits $ 3,490,030 $ 207,226
Interest-bearing demand deposits 861,238 170,840
Savings deposits 4,057,091 1,175,203
Time deposits $100,000 and over 4,972,842 166,967
Other time deposits 5,053,726 219,107
----------- ----------
$18,434,927 $1,939,343
=========== ==========
LIQUIDITY
We meet our liquidity needs through scheduled maturities of loans and
investments on the asset side and through pricing policies on the liability side
for interest-bearing deposit accounts. The level of liquidity is measured by the
loan-to-total borrowed funds ratio which was at 64.73% at September 30, 2001 and
46.67% at December 31, 2000.
11
SUN BANCSHARES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION -- continued
LIQUIDITY -- continued
Securities available-for-sale, which totaled $3,147,005 at September 30, 2001,
serve as a ready source of liquidity. We also have lines of credit available
with correspondent banks to purchase federal funds for periods from one to seven
days. At September 30, 2001, unused lines of credit totaled $1,500,000.
CAPITAL RESOURCES
Total shareholders' equity decreased from $6,059,599 at December 31, 2000 to
$5,589,646 at September 30, 2001. The decrease is primarily due to the net loss
for the period of $500,613.
The Federal Reserve Board and bank regulatory agencies require bank holding
companies and financial institutions to maintain capital at adequate levels
based on a percentage of assets and off-balance sheet exposures, adjusted for
risk-weights ranging from 0% to 100%. Under the risk-based standard, capital is
classified into two tiers. Tier 1 capital consists of common shareholders'
equity, excluding the unrealized gain (loss) on available-for-sale securities,
minus certain intangible assets. Tier 2 capital consists of the general reserve
for loan losses subject to certain limitations. An institutions' qualifying
capital base for purposes of its risk-based capital ratio consists of the sum of
its Tier 1 and Tier 2 capital. The regulatory minimum requirements are 4% for
Tier 1 and 8% for total risk-based capital.
Banks and bank holding companies are also required to maintain a capital at a
minimum level based on total average assets, which is known as the leverage
ratio. The minimum requirement for the leverage ratio is 3%, but all but the
highest rated institutions are required to maintain ratios 100 to 200 basis
point above the minimum. Both the Company and the Bank exceeded their minimum
regulatory capital ratios as of September 30, 2001.
The following table summarizes the Company's risk-based capital at September 30,
2001:
Shareholders' equity $ 5,558,986
Less: intangibles --
-----------
Tier 1 capital 5,558,986
Plus: allowance for loan losses (1) 120,000
-----------
Total capital $ 5,678,986
===========
Risk-weighted assets $14,116,224
===========
Risk-based capital ratios
Tier 1 capital (to risk-weighted assets) 39.38%
Total capital (to risk-weighted assets) 40.23%
Tier 1 (to total average assets) 37.93%
(1) limited to 1.25% of risk-weighted assets
REGULATORY MATTERS
From time to time, various bills are introduced in the United States Congress
with respect to the regulation of financial institutions. Certain of these
proposals, if adopted, could significantly change the regulation of banks and
the financial services industry. We cannot predict whether any of these
proposals will be adopted or, if adopted, how these proposals would affect us.
12
SUN BANCSHARES, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
NOTE 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following documents are filed as part of this report: Not
applicable.
Reports on Form 8-K
(b) Reports on Form 8-K - None
13
SUN BANCSHARES, INC.
SIGNATURE
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.
By: /s/ THOMAS BOUCHETTE
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Thomas Bouchette
President & Chief Executive Officer
Date: November 6, 2001 By: /s/ RANDY L. CARMON
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Randy L. Carmon
Chief Financial Officer
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