MOUNT LAUREL, N.J., April 27, 2015 /PRNewswire/ --

First Quarter Highlights

• Net income of $2.8 million for the quarter ended March 31, 2015.
• Significant progress on branch efficiency improvement with the eventual 39% reduction in locations by the end of 2015 since June 2014, an expected 20% increase in the average branch deposit size and an estimated $10 million annualized reduction in operating expenses.
• Completed previously announced sale of seven Cape May area branch locations for a net gain of $9.2 million.
• Recorded $3.3 million in restructuring charges associated with the recently announced consolidation of nine branches and sale of Hammonton branch to Cape Bank.
• Non-performing loans held for investment fell by $5.7 million, from $11.0 million, or 0.73% of gross loans held for investment at December 31, 2014, to $5.4 million, or 0.36% of gross loans held for investment at March 31, 2015. 
• Excess liquidity remained elevated with average interest bearing cash of $475.0 million, however the period end balance was $355.0 million as liquidity deployment began late in the quarter.
• Operating expenses, excluding restructuring charges, continue to decline.  The Company is nearing achievement of normalized quarterly operating expenses below $20 million.

Sun Bancorp, Inc. (NASDAQ: SNBC) (the "Company"), the holding company for Sun National Bank (the "Bank"), reported today net income of $2.8 million, or $0.15 per diluted share, for the quarter ended March 31, 2015, compared to a net loss of $2.8 million, or a loss of $0.15 per diluted share, for the quarter ended December 31, 2014 and a net loss of $1.9 million, or a loss of $0.11 per diluted share, for the quarter ended March 31, 2014. 

"We are generally pleased with the results of the first quarter," said Thomas M. O'Brien, President & CEO.  "In addition to returning to profitability, we continued the momentum in executing the restructuring plan announced in July 2014, including substantial improvements in asset quality, capital, expense management, branch rationalization and commercial loan origination. We believe 2015 will continue to be a transitional year as we begin to deliver on positive earnings. We remain focused on building shareholder value, achieving full compliance with our regulatory agreement, improving our operating efficiency and creating a best-in-class commercial bank." 

Discussion of Results:

Balance Sheet

During the quarter, total assets fell $280.4 million from December 31, 2014 due primarily to the completion of the sale of seven branch locations in the Cape May, New Jersey market in March 2015 and deposit reductions. Total assets were $2.43 billion at March 31, 2015, as compared to $2.72 billion at December 31, 2014 and $3.04 billion at March 31, 2014.  The Bank's liquidity levels remain elevated, although cash and cash equivalents decreased to $388.2 million at March 31, 2015, as compared to $548.4 million at December 31, 2014. The decrease of $160.3 million in cash and cash equivalents was primarily due to the completion of the aforementioned branch sale as well as a planned run-off of certain deposit accounts.

Gross loans held-for-investment totaled $1.48 billion at March 31, 2015, as compared to $1.51 billion at December 31, 2014 and $2.08 billion at March 31, 2014.  The decline in gross loans held-for-investment is due primarily to the Bank's new credit discipline and its aggressive work out strategies. Additionally, during the first quarter of 2015, the Bank began to see increased loan originations primarily in commercial real estate by the Bank's new commercial lending teams. The Bank also completed the purchase of approximately $50 million of in-market multi-family loan participations and loan originations totaled $56 million in the first quarter of 2015.

Deposits were $1.96 billion at March 31, 2015, as compared to $2.09 billion at December 31, 2014 and $2.57 billion at March 31, 2014. The total quarterly cost of deposits fell by seven basis points to 0.28% in the first quarter of 2015 as compared to 0.35% in the first quarter of 2014 due to managed run-off of higher yielding municipal accounts and the re-pricing of certain retail deposits.   

The Bank placed $4.8 million in loans, $33.4 million in deposits and $375 thousand of fixed assets into held-for-sale at March 31, 2015 related to the pending sale of its Hammonton branch location to Cape Bank, which is scheduled to close in the third quarter of 2015. The Bank expects to record a gain on the sale of this location at closing. As a result of this pending sale, expenses of $231 thousand were recognized in the first quarter of 2015 to record the associated fixed assets to the lower of cost of market.

"Now that our commercial lending platform is in place, as loan demand continues to increase, we anticipate reducing the opportunity cost of the excess liquidity, which is a critical piece of our 2015 business plan," said O'Brien. "We continue to evaluate quality commercial lending opportunities throughout the region. In the first quarter, we originated $56 million in new loans and had $98 million in commitments scheduled to close in the second quarter of 2015. Additionally, we committed to purchase approximately $100 million in metro-NYC area multi-family loan participations, of which approximately $50 million closed at the end of the first quarter. The remainder of the commitment will close in the second quarter."

Net Interest Income and Margin

The net interest margin declined 10 basis points to 2.57% for the three months ended March 31, 2015 from 2.67% in the linked fourth quarter as average commercial loan balances declined by $93.7 million, or 8% over the quarter. While elevated liquidity levels continued to pressure the net interest margin in the first quarter, loan demand increased late in the quarter.

"Our overall net interest margin continues to be compressed," said O'Brien. "However, as our excess liquidity is deployed, we project our margin to increase to be between 3.10% and 3.20%. Because of our elevated liquidity position, we are able to take advantage of opportunities that we believe will improve our net interest margin."

Non-Interest Income

Non-interest income was $13.1 million for the quarter ended March 31, 2015, as compared to $4.1 million and $4.9 million for the quarters ended December 31, 2014 and March 31, 2014, respectively. The increase was primarily attributable to a $9.2 million gain on the sale of seven Cape May area bank branches to Sturdy Savings Bank. Offsetting this increase were declines in deposit service charges and fees of $379 thousand and $391 thousand from the quarters ended December 31, 2014 and March 31, 2014, respectively, due to seasonal volume and the overall reduction in accounts as a result of the aforementioned branch sale. The quarter ended March 31, 2014 also included net mortgage banking revenue of $635 thousand, compared to $0 in the current quarter due to the prior year closure of the Company's mortgage banking operations. 

"With our branch network rationalized, we will begin to build a relationship-based deposit-gathering strategy and as a result anticipate generating deposit-related income from service charges, cash management and related commercial banking products and services," said O'Brien.

Non-Interest Expense

Non-interest expense for the first quarter of 2015 was $25.2 million, an increase of $1.5 million from the fourth quarter of 2014 and a decrease of $2.7 million from the first quarter of 2014. During the first quarter of 2015, the Company recorded several restructuring charges related to the conclusion of the Bank's branch rationalization efforts, including $3.3 million of expenses associated with the pending branch consolidations and the sale of our Hammonton branch location. Contained in this charge was $2.1 million of fixed asset impairments, $1.1 million of lease vacancy costs and $156 thousand of severance costs. For the remainder of 2015, the Company expects to recognize $1.3 million in accelerated depreciation expenses representing the write-off of fixed assets at branches scheduled for consolidation. The fourth quarter of 2014 included $2.3 million of lease termination charges. In addition, snow removal costs due to the harsh winter totaled $1.3 million for the first quarter of 2015 as compared to $54 thousand in the fourth quarter of 2014 and $1.0 million in the first quarter of 2014. In the first quarter of 2015, problem loan expense included $667 thousand of one-time costs associated with loan sales. Excluding these items, the Company continues to experience substantial declines in operating expenses. 

"Excluding this quarter's restructuring charges, our quarterly expense run rate continues to decrease," said O'Brien. "By year-end, we anticipate achieving our stated objective of reducing our annual expense base from its previous level of $130 million in 2013 to a less than $80 million run rate by the fourth quarter of 2015. This would represent an impressive reduction in operating expenses of almost 40%. We are approaching both an expense base and distribution model that is much more appropriate for an institution of our size."

Asset Quality

Non-performing loans held-for-investment continued to decline in the first quarter as the balance of non-performing loans held-for-investment decreased by 51% to $5.4 million at March 31, 2015 as compared to $11.0 million at December 31, 2014 and 86% as compared to $37.4 million at March 31, 2014. Non-performing loans held-for-investment to total gross loans held-for-investment declined to 0.36% at March 31, 2015 as compared to 0.73% at December 31, 2014 and 1.80% at March 31, 2014. 

There was no provision expense recorded during the first quarter of 2015 or in the linked quarter or the first quarter of 2014, reflecting the Bank's substantially-improved asset quality metrics. Net charge-offs were $2.6 million in the first quarter of 2015 as compared to $3.3 million in the fourth quarter of 2014 and $1.8 million in the first quarter of 2014. The net charge-offs in the first quarter of 2015 included $3.5 million of consumer net charge-offs due primarily to loan sale activity, partially offset by $857 thousand of commercial loan net recoveries. The allowance for loan losses was $20.6 million, or 1.39% of gross loans held-for-investment, at March 31, 2015, as compared to $23.2 million, or 1.54% of gross loans held-for-investment, at December 31, 2014 and $33.8 million, or 1.62% of gross loans held-for-investment, at March 31, 2014. The allowance for loan losses was 383% of non-performing loans held-for-investment at March 31, 2015 as compared to 210% at December 31, 2014 and 90% at March 31, 2014.

"Our strong coverage ratios and our low levels of problem loans are a result of aggressive actions taken in recent quarters," said O'Brien. "While we exited consumer lending in 2014, we are actively managing the residential mortgage and home equity portfolios and in this quarter, we charged off $2.4 million to further address this aggressively through loan sales. Equally important, the Bank's classified loan portfolio, which includes non-performing loans, declined to $8.5 million at March 31, 2015 as compared to $24.3 million at December 31, 2014 and $99.1 million at March 31, 2014. This 91% decline in the classified loan portfolio within the past year validates the importance of actions taken since the July 2014 restructuring announcement."

Capital

At March 31, 2015, the capital ratios of the Company and the Bank increased due to planned balance sheet runoff and net income of $2.8 million in the first quarter of 2015. At March 31, 2015, the Bank's Tier 1 common equity risk-based capital ratio, total risk-based capital ratio, Tier 1 risk-based capital ratio and leverage capital ratio were approximately 17.1%, 18.4%, 17.1% and 10.5%, respectively. At March 31, 2015, the Company's Tier 1 common equity risk-based capital ratio, total risk-based capital ratio, Tier 1 risk-based capital ratio and leverage capital ratio were approximately 13.4%, 20.4%, 16.7%, and 10.3%, respectively. The Company's tangible equity to tangible assets ratio was 8.8% at March 31, 2015, as compared to 7.7% at December 31, 2014 and 7.0% at March 31, 2014. 

"The results of this quarter allowed us to generate positive internal capital," said O'Brien. "That, along with declining total assets and falling risk-weighted assets led to further increases in already solid regulatory capital ratios. The dedicated management and staff of Sun continue to work tirelessly to execute on the strategic plan in total alignment with our commitments to regulatory excellence and building shareholder value. The combined efforts of the last several months from the board room to the branches have demanded extraordinary efforts from all and the asset quality metrics and net income in this announcement represent a clear demonstration of the intensity of our collective commitment. While there remains much remedial work to be done throughout the balance of 2015, the early stage elements of a successful turnaround are clearly evident."

Conference Call

The Company will hold a conference call on Monday, April 27, 2015 at 11:00 AM (EDT) to discuss results and answer questions from analysts and investors.  Participants may listen to or participate in the Company's earnings conference call via the following:

• Participants toll-free number: 888-713-3589
• Conference ID: 2173008

About Sun Bancorp, Inc.

Sun Bancorp, Inc. (NASDAQ: SNBC) is a $2.43 billion asset bank holding company headquartered in Mount Laurel, New Jersey. Its primary subsidiary is Sun National Bank, a community bank serving customers throughout New Jersey. Sun National Bank is an Equal Housing Lender and its deposits are insured up to the legal maximum by the Federal Deposit Insurance Corporation (FDIC). For more information about Sun National Bank and Sun Bancorp, Inc., visit www.sunnationalbank.com.

Cautionary Note Regarding Forward-Looking Statements

The foregoing material contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, concerning the financial condition, results of operations and business of the Company. Forward-looking statements are statements that include projections, predictions, expectations or beliefs about events or results or otherwise are not statements of historical facts, including statements about the successful implementation of our comprehensive strategic restructuring plan to improve financial performance and capital, reduce costs, risk and operating complexity, and the timing of the completion of the transactions contemplated thereby, addressing the Company's long-standing obstacles to earnings, regulatory compliance and overall performance excellence, building a platform that can support meaningful revenue generation and growth and through which we can begin to deploy our excess cash balances into quality commercial loans, our preparations for future loan growth, our progress in building profitable deposit relationships with our commercial and consumer clients and anticipated reductions in non-interest expenses. These statements may be identified by such words as "should," "expect," "believe," "view," "opportunity," "allow," "continues," "reflects," "typically," "usually," "anticipate" or similar words or variations of such terms.  Actual results and trends could differ materially from those set forth in such statements and there can be no assurances that our strategic restructuring plan will improve our financial performance, improve our future capital levels, reduce our costs, or reduce our risks or operating complexity; that our strategic restructuring plan will be completed as and in the timeframes anticipated; that we will adequately address long-standing obstacles to earnings, regulatory compliance and overall performance excellence; that we will build a platform that can support meaningful revenue generation and growth and through which we can deploy our excess cash balances into quality commercial loans; that our preparations for future loan growth will be successful; that we will continue to make progress in building profitable deposit relationships with our commercial and consumer clients; or that we will experience anticipated reductions in non-interest expenses. We caution that such statements are subject to a number of uncertainties. Factors that could cause actual results to differ from those expressed or implied by such forward-looking statements include, but are not limited to: (i) competition among providers of financial services; (ii) changes in laws and regulations, including without limitation changes in capital requirements under the federal prompt corrective action regulations; (iii) changes in business strategy or an inability to execute strategy due to the occurrence of unanticipated events; (iv) the failure to complete any or all of the transactions contemplated in the Company's comprehensive strategic restructuring plan on the terms currently contemplated; (v) failure to comply with the Bank's agreement with the Office of the Comptroller of the Currency (the "OCC"); (vi) the cost of compliance with the agreement with the OCC; (vii) local, regional and national economic conditions and events and the impact they may have on the Company, the Bank and its customers; (viii) the ability to attract deposits and other sources of liquidity; (ix) changes in the financial performance and/or condition of the Bank's borrowers; (x) changes in the level of non-performing and classified assets and charge-offs; (xi) changes in estimates of future loan loss reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements; (xii) inflation, interest rate, securities market and monetary fluctuations; (xiii) changes in consumer spending, borrowing and saving habits; (xiv) the ability to increase market share and control expenses; (xv) volatility in the credit and equity markets and its effect on the general economy; (xvi) the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters; and (xvii) those detailed under the headings "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Form 10-K for the fiscal year ended December 31, 2014 and in other filings made pursuant to the Securities Exchange Act of 1934, as amended. Therefore, readers should not place undue reliance on any forward-looking statements. The Company does not undertake, and specifically disclaims, any obligation to publicly release the results of any revisions that may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

Non-GAAP Financial Measures (Unaudited)

This news release references tangible book value per common share and return on average tangible equity, which are non-GAAP financial measures. Management believes that tangible book value per common share and return on average tangible equity are meaningful financial measures because they are two of the measures we use to assess capital adequacy.

Tangible book value per common share (dollars in thousands)

The following reconciles shareholders' equity to tangible equity by reducing shareholders' equity by the intangible asset balance at March, 31, 2015, December 31, 2014, September 30, 2014, June 30, 2014 and March 31, 2014.

Return on Average Tangible Equity (dollars in thousands)

The following provides the calculation of return on tangible equity for the three months ended March, 31, 2015, December 31, 2014, September 30, 2014, June 30, 2014 and March 31, 2014.