UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to __________
Commission file number 000-26191
SUN COMMUNITY BANCORP LIMITED
(Exact name of registrant as specified in its charter)
ARIZONA 86-0878747
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
2777 EAST CAMELBACK ROAD, SUITE 101
PHOENIX, ARIZONA 85016
(Address of principal executive offices) (Zip Code)
(602) 955-6100
(Registrant's telephone number)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act 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 [X] 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: 5,503,870 shares outstanding as of April 30,
2000.
Page 1 of 18
INDEX
PART I. FINANCIAL INFORMATION
FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this document, including Sun's interim
consolidated financial statements, Management's Discussion and Analysis of
Financial Condition and Results of Operations and in documents incorporated into
this document by reference that are not historical facts, including, without
limitation, statements of future expectations, projections of results of
operations and financial condition, statements of future economic performance
and other forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, are subject to known and unknown
risks, uncertainties and other factors which may cause the actual future
results, performance or achievements of Sun and/or its subsidiaries and other
operating units to differ materially from those contemplated in such
forward-looking statements. The words "intend", "expect", "project", "estimate",
"predict", "anticipate", "should", "believe", and similar expressions also are
intended to identify forward-looking statements. Important factors which may
cause actual results to differ from those contemplated in such forward-looking
statements include, but are not limited to: (i) the results of Sun's efforts to
implement its business strategy, (ii) changes in interest rates, (iii)
legislation or regulatory requirements adversely impacting Sun's banking
business and/or expansion strategy, (iv) adverse changes in business conditions
or inflation, (v) general economic conditions, either nationally or regionally,
which are less favorable than expected and that result in, among other things, a
deterioration in credit quality and/or loan performance and collectability, (vi)
competitive pressures among financial institutions, (vii) changes in securities
markets, (viii) actions of competitors of Sun's banks and their ability to
respond to such actions, (ix) the cost of capital, which may depend in part on
Sun's asset quality, prospects and outlook, (x) changes in governmental
regulation, tax rates and similar matters, (xi) "Year 2000" computer, imbedded
chip and data processing issues, and (xii) other risks detailed in Sun's other
filings with the Securities and Exchange Commission. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual outcomes may vary materially from those indicated. All
subsequent written or oral forward-looking statements attributable to Sun or
persons acting on its behalf are expressly qualified in their entirety by the
foregoing factors. Investors and other interested parties are cautioned not to
place undue reliance on such statements, which speak as of the date of such
statements. Sun undertakes no obligation to release publicly any revisions to
these forward-looking statements to reflect events or circumstances after the
date of such statements or to reflect the occurrence of unanticipated events.
Page
----
Item 1. Financial Statements:
Consolidated balance sheets - March 31, 2000 and December 31, 1999. 3
Consolidated statements of income - Three months ended
March 31, 2000 and 1999. 4
Consolidated statements of changes in stockholders' equity -
Three months ended March 31, 2000 and 1999. 5
Consolidated statements of cash flows - Three months ended
March 31, 2000 and 1999. 6
Notes to consolidated financial statements. 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 17
Item 2. Changes in Securities. 17
Item 3. Defaults Upon Senior Securities. 17
Item 4. Submission of Matters to a Vote of Security Holders. 17
Item 5. Other Information. 17
Item 6. Exhibits and Reports on Form 8-K. 17
SIGNATURES 18
Page 2 of 18
PART I, ITEM I
SUN COMMUNITY BANCORP LIMITED
Consolidated Balance Sheets
As of March 31, 2000 and December 31, 1999
March 31, December 31,
2000 1999
------------- -------------
ASSETS
Cash and due from banks $ 13,988,288 $ 8,578,000
Interest-bearing deposits with banks 6,384,719 11,537,608
Federal funds sold 36,050,206 28,699,050
------------- -------------
Total cash and cash equivalents 56,423,213 48,814,658
Loans held for resale 1,100,000 1,295,977
Investment securities available for sale,
carried at market value 22,042,681 35,439,821
Portfolio loans:
Commercial 247,713,396 191,824,802
Real estate mortgage 8,373,848 7,458,649
Installment 7,785,063 6,948,662
------------- -------------
Total portfolio loans 263,872,307 206,232,113
Less allowance for loan losses (2,999,000) (2,371,000)
------------- -------------
Net portfolio loans 260,873,307 203,861,113
Premises and equipment, net 5,344,025 5,308,423
Accrued interest income 1,588,585 1,352,719
Other assets 4,550,293 4,317,706
------------- -------------
TOTAL ASSETS $ 351,922,104 $ 300,390,417
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 63,431,096 $ 49,650,744
Interest-bearing 212,039,538 175,356,132
------------- -------------
Total deposits 275,470,634 225,006,876
Accrued interest on deposits and
other liabilities 2,677,641 3,996,658
------------- -------------
Total liabilities 278,148,275 229,003,534
MINORITY INTERESTS IN
CONSOLIDATED SUBSIDIARIES 23,687,193 21,384,108
STOCKHOLDERS' EQUITY
Common stock, no par value:
10,000,000 shares authorized;
5,503,870 shares issued and outstanding 51,867,516 51,867,516
Retained-earnings deficit (1,656,773) (1,772,622)
Market value adjustment (net of tax effect)
for investment securities available for sale
(accumulated other comprehensive income) (124,107) (92,119)
------------- -------------
Total stockholders' equity 50,086,636 50,002,775
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 351,922,104 $ 300,390,417
============= =============
Page 3 of 18
SUN COMMUNITY BANCORP LIMITED
Consolidated Statements of Income
For the Three Months Ended March 31, 2000 and 1999
Three Months Ended
March 31
---------------------------
2000 1999
----------- -----------
Interest income:
Portfolio loans (including fees) $ 6,277,535 $ 2,258,024
Loans held for resale 27,875 28,475
Taxable investment securities 360,903 199,610
Federal funds sold 449,468 460,626
Interest-bearing deposits with
banks and other 127,057 28,794
----------- -----------
Total interest income 7,242,838 2,975,529
Interest expense:
Demand deposits 1,078,625 546,280
Savings deposits 4,147 3,164
Time deposits 1,162,838 336,139
Other -- 308
----------- -----------
Total interest expense 2,245,610 885,891
----------- -----------
Net interest income 4,997,228 2,089,638
Provision for loan losses 632,452 209,000
----------- -----------
Net interest income after provision
for loan losses 4,364,776 1,880,638
Noninterest income:
Service charges on deposit accounts 134,899 70,542
Mortgage broker fees 12,268 21,702
Other 96,309 26,331
----------- -----------
Total noninterest income 243,476 118,575
Noninterest expense:
Salaries and employee benefits 2,710,925 1,410,161
Occupancy 426,484 241,094
Equipment rent, depreciation
and maintenance 334,286 246,340
Other 1,155,571 565,653
----------- -----------
Total noninterest expense 4,627,266 2,463,248
----------- -----------
Income (loss) before federal income taxes,
minority interest and cumulative effect of
change in accounting principle (19,014) (464,035)
Federal income taxes (credit) (6,000) (64,000)
----------- -----------
Income (loss) before minority interest
and cumulative effect of change in
accounting principle (13,014) (400,035)
Credit resulting from minority interest
in net losses of consolidated subsidiaries 128,863 224,282
----------- -----------
NET INCOME (LOSS) BEFORE
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE 115,849 (175,753)
Cumulative effect of change in accounting
principle -- Note B -- (386,228)
----------- -----------
NET INCOME (LOSS) $ 115,849 $ (561,981)
=========== ===========
NET INCOME (LOSS) PER SHARE -- Note D
Page 4 of 18
SUN COMMUNITY BANCORP LIMITED
Consolidated Statements of Changes in Stockholders' Equity
For the Three Months Ended March 31, 2000 and 1999
Accumulated
Retained- Other
Common Earnings Comprehensive
Stock Deficit Income (Loss) Total
------------ ------------ ------------ ------------
THREE MONTHS ENDED MARCH 31, 1999:
Balances at January 1, 1999 $ 26,795,416 $ (179,673) $ 11,339 $ 26,627,082
Net proceeds from issuance
of 6,810 shares of
common stock for cash
consideration of $10.00 per share 71,100 71,100
Components of comprehensive income (loss):
Net loss for the period (561,981) (561,981)
Market value adjustment for
investment securities available
for sale (net of tax effect) (7,619) (7,619)
------------
Comprehensive loss
for the period (569,600)
------------ ------------ ------------ ------------
BALANCES AT MARCH 31, 1999 $ 26,866,516 $ (741,654) $ 3,720 $ 26,128,582
============ ============ ============ ============
THREE MONTHS ENDED MARCH 31, 2000:
Balances at January 1, 2000 $ 51,867,516 $ (1,772,622) $ (92,119) $ 50,002,775
Components of comprehensive income:
Net income for the period 115,849 115,849
Market value adjustment for
investment securities available
for sale (net of tax effect) (31,988) (31,988)
------------
Comprehensive income
for the period 83,861
------------ ------------ ------------ ------------
BALANCES AT MARCH 31, 2000 $ 51,867,516 $ (1,656,773) $ (124,107) $ 50,086,636
============ ============ ============ ============
Page 5 of 18
SUN COMMUNITY BANCORP LIMITED
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2000 and 1999
2000 1999
------------ ------------
OPERATING ACTIVITIES
Net income (loss) $ 115,849 $ (561,981)
Adjustments to reconcile net income (loss) to net
cash used by operating activities:
Minority interest in net losses of consolidated subsidiaries (128,863) (224,282)
Provision for loan losses 632,452 209,000
Depreciation of premises and equipment 309,746 338,190
Net accretion of investment security discounts (15,228) (71,522)
Cumulative effect of change in accounting principle -- (386,228)
Origination and purchases of loans held for resale (6,199,128) (11,084,478)
Proceeds from sales of loans held for resale 6,395,105 9,571,013
Decrease (increase) in accrued interest income and other assets (468,453) 359,166
Increase (decrease) in accrued interest and other liabilities (1,319,017) 213,870
------------ ------------
NET CASH USED BY OPERATING ACTIVITIES (677,537) (1,637,252)
INVESTING ACTIVITIES
Proceeds from maturities of investment securities
available for sale 21,477,500 15,341,000
Purchases of investment securities available for sale (8,097,120) (16,786,807)
Net increase in portfolio loans (57,644,646) (18,086,866)
Purchases of premises and equipment (345,348) (520,083)
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (44,609,614) (20,052,756)
FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts and
savings accounts 33,902,379 17,042,694
Net increase in certificates of deposit 16,561,379 6,788,997
Net proceeds from issuance of common stock -- 71,100
Resources provided by minority interests 2,431,948 355,841
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 52,895,706 24,258,632
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 7,608,555 2,568,624
Cash and cash equivalents at beginning of period 48,814,658 48,361,413
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 56,423,213 $ 50,930,037
============ ============
Page 6 of 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUN COMMUNITY BANCORP LIMITED
NOTE A - BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Sun
Community Bancorp Limited (Sun) have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions for Form 10-Q. Accordingly, they do not include all information and
footnotes necessary for a fair presentation of consolidated financial position,
results of operations and cash flows in conformity with generally accepted
accounting principles.
The statements do, however, include all adjustments of a normal recurring
nature (in accordance with Rule 10-01(b)(8) of Regulation S-X) which Sun
considers necessary for a fair presentation of the interim periods.
The results of operations for the three-month period ended March 31, 2000
are not necessarily indicative of the results to be expected for the year ending
December 31, 2000.
The consolidated balance sheet as of December 31, 1999 was derived from
audited consolidated financial statements as of that date. Certain 1999 amounts
have been reclassified to conform to the 2000 presentation.
NOTE B - IMPLEMENTATION OF NEW ACCOUNTING STANDARDS
AICPA Statement of Position 98-5, REPORTING ON THE COSTS OF START-UP
ACTIVITIES, requires start-up, preopening and organizational costs to be charged
to expense when incurred. The initial application of this statement, which
became effective January 1, 1999, also required the write-off of any such costs
previously capitalized. Implementation of this new statement is shown as a
cumulative effect adjustment in the first quarter of 1999.
Page 7 of 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUN COMMUNITY BANCORP LIMITED - CONTINUED
NOTE C - NET INCOME PER SHARE
The computations of basic and diluted earnings per share were as follows:
Three Months Ended March 31
--------------------------
2000 1999
------------ -----------
Numerator--net income (loss) for the period $ 115,849 $ (561,981)
============ ===========
Denominator:
Weighted average number of common shares
outstanding (denominator for basic
earnings per share) 5,503,870 3,853,870
Effect of dilutive securities - stock options 73,436 --(1)
------------ -----------
Denominator for dilutive net income per share --
Weighted average number of common shares
and potential dilution 5,577,306 3,853,870
============ ===========
Net income (loss) per share:
Before cumulative effect of change in
accounting principle:
Basic $ 0.02 $ (0.05)
============ ===========
Diluted $ 0.02 $ (0.05)
============ ===========
After cumulative effect of change in
accounting principle:
Basic $ 0.02 $ (0.15)
============ ===========
Diluted $ 0.02 $ (0.15)
============ ===========
(1) Antidilutive for period presented.
NOTE D - NEW BANK AND PENDING BANK APPLICATIONS
Black Mountain Community Bank, located in Henderson, Nevada, opened in
March 2000. It is majority-owned by Nevada Community Bancorp Limited which is
majority-owned by Sun.
As of March 31, 2000, an application was pending for an additional bank in
New Mexico (Sunrise Bank of Albuquerque), which opened in early April 2000.
Page 8 of 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUN COMMUNITY BANCORP LIMITED - CONTINUED
NOTE E - PROSPECTIVE IMPACT OF NEW ACCOUNTING STANDARDS NOT YET ADOPTED
FASB Statement No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES requires all derivatives to be recognized in financial statements and
to be measured at fair value. Gains and losses resulting from changes in fair
value would be included in income, or in comprehensive income, depending on
whether the instrument qualifies for hedge accounting and the type of hedging
instrument involved. This new standard will become effective in 2001 and,
because Sun and its banks have not typically entered into derivative contracts
either to hedge existing risks or for speculative purposes, is not expected to
have a material effect on its financial statements.
A variety of proposed or otherwise potential accounting standards are
currently under study by standard-setting organizations and various regulatory
agencies. Because of the tentative and preliminary nature of these proposed
standards, management has not determined whether implementation of such proposed
standards would be material to Sun's financial statements.
[The remainder of this page intentionally left blank]
Page 9 of 18
PART I, ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Total assets approximated $351.9 million at March 31, 2000, an increase of
$51.5 million from the December 31, 1999 level of $300.4 million. The
consolidated balance sheets include Sun and its majority-owned subsidiaries. In
March 2000, Black Mountain Community Bank located in Henderson, Nevada commenced
operations and was added to the consolidated group as a majority-owned
subsidiary of Nevada Community Bancorp Limited, a majority-owned subsidiary of
Sun.
Portfolio loans increased during the three-month period by approximately
$57.6 million. Loan growth was funded primarily by higher levels of time
deposits. The majority of portfolio loan growth occurred in commercial loans,
which increased approximately $55.9 million, consistent with the banks' emphasis
on commercial lending activities. Interim 2000 loan growth includes $12 million
loaned to Capitol Bancorp, Sun's majority shareholder, on a short-term basis.
The allowance for loan losses at March 31, 2000 approximated $3 million or
1.14% of total portfolio loans, a slight decrease from the year-end 1999 ratio
of 1.15%.
The allowance for loan losses is maintained at a level believed adequate by
management to absorb potential losses inherent in the loan portfolio at the
balance sheet date. Management's determination of the adequacy of the allowance
is based on evaluation of the portfolio (including volume, amount and
composition, potential impairment of individual loans and concentrations of
credit), past loss experience, current economic conditions, loan commitments
outstanding and other factors.
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Page 10 of 18
The table below summarizes portfolio loan balances and activity in the
allowance for loan losses for the three-month periods (in thousands):
2000 1998
------- -------
Allowance for loan losses at January 1 $ 2,371 $ 696
Loans charged-off (4) --
Recoveries -- --
Additions to allowance charged to expense 632 209
------- -------
Allowance for loan losses at March 31 $ 2,999 $ 905
======= =======
For internal purposes, management allocates the allowance to all loan
classifications. The amounts allocated in the following table (in thousands),
which includes all loans for which management has concerns based on Sun's loan
rating system, should not be interpreted as an indication of future charge-offs.
In addition, amounts allocated are not intended to reflect the amount that may
be available for future losses.
March 31, 2000 December 31, 1999
------------------ ------------------
Percent Percent
of Total of Total
Portfolio Portfolio
Loans Loans
--------- ---------
Commercial $ 1,326 0.50% $ 1,006 0.49%
Real estate mortgage 76 0.03 50 0.02
Installment 8 -- 28 0.01
Unallocated 1,589 0.61 1,287 0.63
-------- ------ -------- ------
Total allowance for loan losses $ 2,999 1.14% $ 2,371 1.15%
======== ====== ======== ======
Total portfolio
loans outstanding $263,872 $206,232
======== ========
Page 11 of 18
Impaired loans (i.e. loans for which there is a reasonable probability that
borrowers would be unable to repay all principal and interest due under the
contractual terms of the loan documents) were not material in 1999 and through
March 31, 2000.
Nonperforming loans (i.e., loans which are 90 days or more past due and
loans on nonaccrual status) are summarized below (in thousands):
March 31 December 31
2000 1999
------- -------
Nonaccrual loans:
Commercial $ 670 $ 34
Real estate
Installment
------- -------
Total nonaccrual loans 670
Past due (>90 days) loans:
Commercial $ 137 $
Real estate
Installment
------- -------
Total past due loans 137
------- -------
Total nonperforming loans $ 807 $ 34
======= =======
Nonperforming loans increased $773,000 during early 2000, however,
continued at a low level in relation to total loans. These consist of a small
number of loans in various stages of resolution which management believes to be
adequately collateralized or otherwise appropriately considered in its
determination of the adequacy of the allowance for loan losses.
The following comparative analysis summarizes each bank's total portfolio
loans, allowance for loan losses, nonperforming loans and allowance ratios
(dollars in thousands):
Allowance as a
Total Allowance for Nonperforming Percentage of Total
Portfolio Loans Loan Losses Loans Portfolio Loans
--------------------- --------------------- ----------------- -----------------
March 31 Dec 31 March 31 Dec 31 March 31 Dec 31 March 31 Dec 31
2000 1999 2000 1999 2000 1999 2000 1999
--------- --------- --------- --------- ------- ------- ------- -------
Bank of Tucson $ 61,555 $ 59,088 $ 763 $ 725 1.24% 1.23%
Camelback Community Bank 27,510 22,731 293 228 1.07 1.00
East Valley Community Bank(1) 6,640 4,335 70 44 1.05 1.01
Mesa Bank 23,519 18,884 247 189 1.05 1.00
Southern Arizona Community Bank 24,732 20,610 260 207 1.05 1.00
Valley First Community Bank 39,403 36,334 461 418 $ 423 $ 34 1.17 1.15
Nevada Community Bancorp:
Black Mountain Community Bank(2) 39 1 2.56
Desert Community Bank(1) 17,855 11,438 252 154 384 1.41 1.35
Red Rock Community Bank(1) 16,491 7,861 268 156 1.63 1.98
Sunrise Capital Corporation:
Sunrise Bank of Arizona 34,130 24,952 312 250 .91 1.00
Other, net 11,998 (1) 72 -- .60
--------- --------- ------- ------- ----- ----- ----- -----
Consolidated $ 263,872 $ 206,232 $ 2,999 $ 2,371 $ 807 $ 34 1.14% 1.15%
========= ========= ======= ======= ===== ===== ===== =====
As a condition of charter approval, each bank is required to maintain an
allowance for loan losses of not less than 1% for the first three years of
operations. For periods after June 30, 1999, Bank of Tucson is no longer subject
to the minimum allowance for loan loss requirement.
(1) East Valley Community Bank, Desert Community Bank and Red Rock Community
Bank commenced operations at varying dates in 1999.
(2) Black Mountain Community Bank commenced operations in March 2000.
Noninterest-bearing deposits approximated 25.4% of total deposits at
September 30, 1999, a decrease from the December 31, 1998 level of 28.4%. Levels
of noninterest-bearing deposits fluctuate based on customers' transaction
activity.
Page 12 of 18
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 2000 approximated $116,000
($0.02 per share), compared to a net loss from operations of $176,000 ($0.05 per
share) during the corresponding period of 1999. For the three months ended March
31, 1999, after adjusting for a change in accounting principle, Sun's net loss
approximated $562,000 ($0.15 per share).
Operating results and total assets (in thousands) were as follows:
Three Months Ended March 31
--------------------------------------------------------------
Net Income Return on Return on
Total Assets (Loss) Beginning Equity Average Assets
--------------------- --------------------- ----------------- -----------------
March 31 Dec 31
2000 1999 2000 1999 2000 1999 2000 1999
--------- --------- --------- --------- ------- ------- ------- -------
Bank of Tucson $ 89,115 $ 82,113 $ 455 $ 193 24.75% 12.41% 2.15% 1.15%
Camelback Community Bank 38,447 30,254 3 (310) 0.34 0.04
East Valley Community Bank(1) 10,832 10,757 (201)
Mesa Bank 29,194 24,738 2 (160) 0.24 0.03
Southern Arizona Community Bank 29,176 25,778 3 (309) 0.27 0.03
Valley First Community Bank 45,558 45,678 109 (63) 10.36 1.00
Nevada Community Bancorp:
Black Mountain Community Bank(2) 5,614 (98)
Desert Community Bank(1) 23,592 17,839 (112)
Red Rock Community Bank(1) 20,486 15,596 (91)
Sunrise Capital Corporation:
Sunrise Bank of Arizona 42,564 30,615 23 (291) 2.15 0.27
Other, net 17,344 17,022 23 378
--------- --------- --------- --------- ------- ------- ------- -------
Consolidated $ 351,922 $ 300,390 $ 116 $ (562) 0.93% -- 0.14% --
========= ========= ========= ========= ======= ======= ======= =======
n/a Not applicable
(1) East Valley Community Bank, Desert Community Bank and Red Rock Community
Bank commenced operations at varying dates in 1999.
(2) Black Mountain Community Bank commenced operations in March 2000.
Net interest income increased to $5 million during the three-month 2000
period versus $2.1 million in the corresponding period of 1999 primarily due to
growth in total assets and the number of banks within the consolidated group.
Noninterest income increased to $243,000 for the 2000 three-month period,
as compared with $119,000 in 1999. Service charge revenue increased 91.2% in the
2000 period compared to the same period in 1999. This increase is primarily
related to higher transaction volume and the larger number of customers
resulting from the addition of new banks in 1999 and 2000.
Provisions for loan losses were $632,000 for the three months ended March
31, 2000 compared to $209,000 during the 1999 period. The increase is primarily
related to loan growth. The provisions for loan losses are based upon
management's analysis of the allowance for loan losses, as previously discussed.
Noninterest expense for the three months ended March 31, 2000 was $4.6
million compared with $2.5 million in 1999. The increase in noninterest expense
is associated with newly formed banks, growth and increases in general operating
costs. Increases in employee compensation and occupancy mostly relate to the
growth in number of banks within the consolidated group and the larger number of
data processing and other administrative support staff necessary for the
increased number and size of banks.
Page 13 of 18
LIQUIDITY AND CAPITAL RESOURCES
The principal funding source for asset growth and loan origination
activities is deposits. Total deposits increased $50.5 million for the
three-month 2000 period, compared to $23.8 million in 1999. Such growth occurred
in all deposit categories, with the majority from time deposits. The
Corporation's banks generally do not rely on brokered deposits as a key funding
source.
Deposit growth in 2000 has been deployed primarily into commercial loans,
consistent with the banks' emphasis on commercial lending activities.
Cash and cash equivalents amounted to $56.4 million or 16% of total assets
at March 31, 2000 as compared with $48.8 million or 16.3% of total assets at
December 31, 1999. As liquidity levels vary continuously based on customer
activities, amounts of cash and cash equivalents can vary widely at any given
point in time. Management believes the banks' liquidity position at March 31,
2000 is adequate to fund loan demand and meet depositor needs.
In addition to cash and cash equivalents, a source of long-term liquidity
is the banks' marketable investment securities. Sun's liquidity requirements
have not historically necessitated the sale of investments in order to meet
liquidity needs. It also has not engaged in active trading of its investments
and has no intention of doing so in the foreseeable future. At March 31, 2000
Sun and the banks had approximately $22 million of investment securities
classified as available for sale which can be utilized to meet various liquidity
needs as they arise.
Sun and its banks are subject to complex regulatory capital requirements,
which require maintaining certain minimum capital ratios. These ratio
measurements, in addition to certain other requirements, are used by regulatory
agencies to determine the level of regulatory intervention and enforcement
applied to financial institutions. Sun and each of its banks are in compliance
with the regulatory requirements and management expects to maintain such
compliance.
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Page 14 of 18
Stockholders' equity, as a percentage of total assets, approximated 14.2%
at March 31, 2000, a decrease from the beginning of the year ratio of 16.6%.
Total capital funds (stockholders' equity, plus minority interests in
consolidated subsidiaries) aggregated $73.8 million or 21% of total assets at
March 31, 2000. The following table summarizes the amounts and related ratios of
individually significant subsidiaries (assets of $30 million or more at the
beginning of 2000) and consolidated regulatory capital position at March 31,
2000:
Valley First
Bank of Community
Tucson Bank Consolidated
--------- --------- ----------
Total capital to total assets:
Minimum required amount >=$ 3,555 >=$ 1,826 >=$ 14,077
Actual amount $ 7,249 $ 4,140 $ 50,087
Ratio 8.16% 9.07% 14.23%
Tier I capital to risk-weighted assets:
Minimum required amount(1) >=$ 2,619 >=$ 1,652 >=$ 13,231
Actual amount $ 7,249 $ 4,131 $ 73,710
Ratio 11.07% 10.00% 22.28%
Combined Tier I and Tier II capital to risk-weighted assets:
Minimum required amount(2) >=$ 5,238 >=$ 3,304 >=$ 26,463
Amount required to meet "Well-Capitalized" category(3) >=$ 6,548 >=$ 4,130 >=$ 33,079
Actual amount $ 8,012 $ 4,592 $ 76,709
Ratio 12.24% 11.12% 23.19%
(1) The minimum required ratio of Tier I capital to risk-weighted assets is 4%.
(2) The minimum required ratio of Tier I and Tier II capital to risk-weighted
assets is 8%.
(3) In order to be classified as a "well-capitalized" institution, the ratio of
Tier I and Tier II capital to risk-weighted assets must be 10% or more.
Sun's operating strategy continues to be focused on the ongoing growth and
maturity of its existing banks, coupled with new bank expansion in selected
markets as opportunities arise. Accordingly, Sun may invest in or otherwise add
additional banks in future periods, subject to economic conditions and other
factors, although the timing of such additional banking units, if any, is
uncertain. Such future new banks and/or additions of other operating units could
be either wholly-owned, majority-owned or otherwise controlled by Sun. Plans for
additional bank development activities in the states of Arizona, New Mexico and
California were announced previously. At March 31, 2000, an application was
pending for a new bank in New Mexico.
In April 2000, Sun announced plans to purchase up to $3 million of its
common stock in open market purchases during the next several months. The shares
repurchased in this manner may be retained as treasury shares, retired, used for
implementation of an employee stock ownership plan or for other business
purposes. To the extent such share purchases are made, they will have the impact
of increasing the percentage ownership of Sun by Capitol Bancorp Ltd., which
currently owns 51% of Sun's common stock. The share purchase program will be
funded from Sun's existing resources, principally short-term loans and
investments.
Page 15 of 18
CENTURY DATE CHANGE
Throughout 1999, significant attention was drawn to the century date change
and concerns about whether banks were prepared. What was predicted by some media
to become a catastrophic disaster of computer failures, proved to be a nonevent.
Sun and its banks were well prepared, far in advance of the regulatory
initiatives, and were pleased to celebrate the new year without any significant
problems.
Bank regulatory agencies have advised that they remain somewhat concerned
about the banking industry on this matter for the remainder of 2000 and are
likely to perform some limited follow-up examinations during the period.
Management estimates additional future costs relating to the century date change
will be minimal.
IMPACT OF NEW ACCOUNTING STANDARDS
As discussed elsewhere herein, a new accounting standard which required the
write-off of previously capitalized start-up and preopening costs was
implemented effective January 1, 1999. That standard requires that such costs
thereafter be charged to expense, when incurred.
FASB Statement No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES requires all derivatives to be recognized in financial statements and
to be measured at fair value. Gains and losses resulting from changes in fair
value would be included in income, or in comprehensive income, depending on
whether the instrument qualifies for hedge accounting and the type of hedging
instrument involved. This new standard will become effective in 2001 and,
because Sun and its banks have not typically entered into derivative contracts
either to hedge existing risks or for speculative purposes, is not expected to
have a material effect on its financial statements.
A variety of proposed or otherwise potential accounting standards are
currently under study by standard-setting organizations and various regulatory
agencies. Because of the tentative and preliminary nature of these proposed
standards, management has not determined whether implementation of such proposed
standards would be material to Sun's financial statements.
Page 16 of 18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Sun and its subsidiaries are parties to certain ordinary, routine
litigation incidental to their business. In the opinion of management,
liabilities arising from such litigation would not have a material effect
on Sun's consolidated financial position or results of operations.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
(27) Financial Data Schedule.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended March
31, 2000.
Page 17 of 18
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 COMMUNITY BANCORP LIMITED
(Registrant)
/s/ Joseph D. Reid
----------------------------------------
Joseph D. Reid
Chairman and Chief Executive Officer
(duly authorized to sign on behalf
of the registrant)
/s/ Lee W. Hendrickson
----------------------------------------
Lee W. Hendrickson
Executive Vice President and
Chief Financial Officer
Date: May 15, 2000
Page 18 of 18
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule