MOUNT LAUREL, N.J., Oct. 26, 2015 /PRNewswire/ --

Third Quarter Highlights:

• Net income of $3.2 million, or $0.17 per diluted share, for the quarter ended September 30, 2015, and $8.8 million, or $0.47 per diluted share, for the first nine months of 2015.
• Completion of comprehensive restructuring during the quarter with the sale of one branch and the consolidation of nine others. Since the Company's restructuring announcement in 2014, the Bank has reduced its branch count by 20 locations, or 39%.
• Capital ratios remain strong with total risk-based capital ratio of 21.8% and tangible equity to assets of 9.7% as of September 30, 2015.
• Asset quality remains stable with continued low levels of problem loans. Non-performing loans held-for-investment declined from $14.1 million at September 30, 2014 to $5.9 million at June 30, 2015 and $3.7 million at September 30, 2015. Non-performing assets of $4.6 million represent 0.2% of total assets at September 30, 2015.
• Liquidity remains elevated as average interest bearing cash was $275 million for the third quarter as compared to $329 million in the second quarter of 2015 as liquidity deployment efforts continue.

Sun Bancorp, Inc. (NASDAQ: SNBC) (the "Company"), the holding company for Sun National Bank (the "Bank"), today reported net income of $3.2 million, or $0.17 per diluted share, for the quarter ended September 30, 2015, compared to net income of $2.8 million, or $0.15 per diluted share, for the quarter ended June 30, 2015 and a net loss of $0.8 million, or a loss of $0.05 per diluted share, for the quarter ended September 30, 2014.

"Since last year, our goal has been to fundamentally rebuild the Company by eliminating excessive operating complexity, outsized operating expenses and volatile credit risk. Our stated ambition was to bring the Company to profitability in 2015," said Thomas M. O'Brien, President & CEO. "As a result of the successful execution of our strategy, the Company has achieved profitability in each quarter of 2015 with year to date net income of $8.8 million. The results of the third quarter demonstrate our continued momentum in achieving the successful turnaround of the Company. The successful execution of our strategy could not have been achieved without the commitment and dedication of our employees, management and our Board of Directors. As a direct result of these combined efforts, I can report that our aggressive restructuring was completed on or ahead of schedule and budget. With the comprehensive restructuring now fully implemented, we will focus our energy on further efficiency enhancements and growing revenue with the goal of building net income so that we achieve even stronger earnings from both a quality and quantity perspective."

Discussion of Results:

Balance Sheet

Total assets decreased to $2.29 billion at September 30, 2015, as compared to $2.38 billion at June 30, 2015 and $2.72 billion at December 31, 2014. The planned balance sheet reductions are now complete as the Company's restructuring efforts reduced non-core, unprofitable segments of the balance sheet. Key aspects of the restructuring plan included the sale of problem and high risk loans, the consolidation or sale of 20 branch offices, and the exit of unprofitable business lines including mortgage banking, asset based lending, healthcare lending and syndicated lending. Cash and cash equivalents increased to $287.9 million at September 30, 2015 as compared to $278.9 million at June 30, 2015 and decreased from $548.4 million at December 31, 2014. The increase in cash and cash equivalents during the third quarter is primarily due to loan pay downs in excess of production, as well as investment sales, partially offset by deposit reductions. The overall decrease in cash and cash equivalents in the nine month period was primarily due to increases in loan originations, purchases of several multifamily loan participations and the completion of the sale of eight total branch locations throughout 2015.

Gross loans held-for-investment totaled $1.53 billion at September 30, 2015, as compared to $1.51 billion at December 31, 2014 and $1.58 billion at June 30, 2015. The decline in gross loans held-for-investment during the third quarter is due primarily to pay downs in excess of new production as well as the selected sale of approximately $1.9 million of consumer and commercial under-performing loans out of the held-for-investment portfolio. For the year, the Bank has experienced net loan growth both through organic originations as well as through multi-family loan participations, while strategically exiting residential and commercial loan transactions that did not contribute to the Bank's long-term relationship strategies.

"We saw an elevated amount of payoffs in the third quarter and some seasonal summertime softness in originations. While we experienced an overall reduction in end-of-period loan balances, our average loan balances increased during the quarter due to loan closings occurring very late in the second quarter," stated O'Brien.

Deposits were $1.82 billion at September 30, 2015, as compared to $2.09 billion at December 31, 2014 and $1.88 billion at June 30, 2015. The Bank continues to experience deposit reductions as a result of managed run-off of higher yielding municipal accounts and the re-pricing of certain non-relationship retail deposits.

"The Bank is enhancing its brand and redesigning its relationship deposit product set in the fourth quarter," stated O'Brien. "As such, we expect deposit growth to resume next year as we deepen our commercial and consumer relationships."

During the third quarter, the Bank completed the sale of $4.8 million in loans, $32.0 million in deposits and $354 thousand of fixed assets, all connected to the sale of its Hammonton branch location to Cape Bank. The Bank recorded a net gain on the sale of this location of $1.3 million during the third quarter. Expenses of $231 thousand were recognized in the first quarter of 2015 when the transaction was initially announced.

Net Interest Income and Margin

The net interest margin increased to 2.81% for the three months ended September 30, 2015 as compared to 2.79% in the linked second quarter as average commercial loan balances increased by $35.1 million, or 2%, over the quarter. Liquidity levels continued to decline as average interest-bearing cash decreased by $54.5 million, or 17%, to $274.7 million from the second quarter.

"While our margin continued to improve slightly, we are being cautious and patient in excess liquidity deployment, given the very conflicting economic signals and highly competitive market," said O'Brien. "Both our continued diligent approaches to organically growing commercial loans, and the overall net growth in our commercial loans-held-for-investment from the beginning of 2015, are expected to continue to improve our margins, on our terms."

Non-Interest Income

Non-interest income was $6.5 million for the quarter ended September 30, 2015, as compared to $4.9 million and $4.7 million for the quarters ended June 30, 2015 and September 30, 2014, respectively. The increase from the linked quarter and the comparable prior year quarter was primarily attributable to a $1.5 million gain on the sale of investment securities and a $1.3 million gain on sale of the Hammonton branch location. The increase from the linked quarter was partially offset by $1.2 million in loan sale gains recorded in the second quarter.

Non-Interest Expense

Non-interest expense for the third quarter of 2015 was $19.9 million, an increase of $1.5 million from the second quarter of 2015 and a decrease of $4.2 million from the third quarter of 2014. During the third quarter of 2015, the Company recorded write-downs of $471 thousand on four Bank-owned branch properties which were transferred to real estate owned at fair value and recorded $537 thousand in accelerated depreciation for the fixed assets of the consolidated branches. The Company also recorded $436 thousand in additional expenses related to lease vacancies during the third quarter of 2015. Compared to the third quarter of 2014, salaries and employee benefits declined by $2.3 million as a result of the Company's restructuring strategy. In addition, other expenses remained flat as compared to the second quarter of 2015. Expenses declined by $1.2 million from the comparable prior year quarter primarily due to $254 thousand of loan sale transaction fees and $238 thousand of intangible asset amortization recognized in the prior year quarter, $308 thousand of unfunded commitment reserves recorded in the third quarter of 2014, compared to $16 thousand recorded in the third quarter of 2015 and $68 thousand of problem loan costs recorded in the third quarter of 2015, compared to $295 thousand recorded in the same quarter of the prior year.

"In this quarter, we absorbed the final expenses related to our ongoing branch rationalization initiatives, as well as our efforts to right-size our overall operating expenses," said O'Brien. "We enter the fourth quarter with confidence that our operating platform is substantially less complex, with prudent levels of risk and greater efficiency. We believe that the Company is now appropriately positioned to generate healthy operating profits as we enter 2016. While there is additional work to be done to improve our operating efficiency, we have more than achieved our goal by reducing operating expense from a $32.5 million quarterly run rate in 2013 to $19.9 million in the third quarter of 2015, which includes $1.4 million of aforementioned one-time charges."

Asset Quality

Asset quality was stable as problem loan levels remain very low. Non-performing loans held-for-investment declined from $5.9 million at June 30, 2015 to $3.7 million at September 30, 2015 due to loan payoffs and sales during the third quarter of 2015. Non-performing loans held-for-investment to total gross loans held-for-investment declined to 0.24% at September 30, 2015 as compared to 0.37% at June 30, 2014 and 0.73% at December 31, 2014.

There was a negative provision for loan losses of $1.8 million during the third quarter of 2015 compared to a negative provision for loan losses of $1.2 million in the second quarter of 2015 and no provision for loan losses in the third quarter of 2014. In the third quarter of 2015, the Bank recorded net recoveries of $344 thousand as compared to net recoveries of $615 thousand in the second quarter of 2015 and net charge offs of $1.9 million in the third quarter of 2014, reflecting the Bank's substantially-improved asset quality metrics. During the third quarter of 2015, the Bank sold $3.8 million of both consumer and commercial loans resulting in net charge-offs of $700 thousand. The negative provision in the third quarter of 2015 was driven by loan pay downs, recoveries and risk rating upgrades. The allowance for loan losses was $18.9 million, or 1.24% of gross loans held-for-investment, at September 30, 2015, as compared to $23.2 million, or 1.54% of gross loans held-for-investment, at December 31, 2014 and $26.5 million, or 1.58% of gross loans held-for-investment, at September 30, 2014. The allowance for loan losses was 517% of non-performing loans held-for-investment at September 30, 2015 as compared to 210% at December 31, 2014 and 188% at September 30, 2014.

"In this quarter, we continued to see cash recoveries on prior period charge-offs, as well as several risk rating upgrades in our commercial portfolio," said O'Brien. "The Company's very strong credit quality metrics are a direct consequence of the aggressive approach to managing credit quality and mitigating potential losses at early stages. Specifically, our non-performing loans held-for-investment fell another 38% from the previous quarter's already low levels and are now at a minimal $3.7 million. As a point of reference, our non-performing loans were more than $40 million prior to our restructuring announcement in July 2014. Additionally, classified loans, which include non-accrual loans, were $5.8 million at September 30, 2015 compared to approximately $100 million immediately prior to the restructuring announcement in 2014."

Capital

Capital ratios improved further due to balance sheet reductions and internal capital generation through retained earnings. At September 30, 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 18.5%, 19.7%, 18.5% and 11.9%, respectively. At September 30, 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 14.6%, 21.8%, 18.2%, and 11.7%, respectively. The Company's tangible equity to tangible assets ratio was 9.7% at September 30, 2015, as compared to 7.7% at December 31, 2014 and 7.5% at September 30, 2014.

"Capital ratios continued to increase to even stronger levels as a result of continued profitability and balance sheet management," said O'Brien. "Both our strong credit quality metrics as well as our capital ratios are among the top as compared to regional and national averages. The Company is now on track for 2015 to be its first profitable year since 2008. Notwithstanding these positive outcomes, we continue to approach our business with a strong sense of urgency to continue to deliver the level of financial performance that our shareholders justly deserve."

Conference Call

The Company will hold a conference call on Monday, October 26, 2015 at 3:00 PM (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: 866-409-1555
• Conference ID: 108678

About Sun Bancorp, Inc.

Sun Bancorp, Inc. (NASDAQ: SNBC) is a $2.29 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, and the metro New York region. 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, which may be identified by the use of such words as "allow," "anticipate," "believe," "continues," "could," "estimate," "expect," "intend," "may," "opportunity," "outlook," "plan," "potential," "predict," "project," "reflects," "should," "typically," "usually," "view," "will," "would," and similar terms and phrases, including references to assumptions. Examples of forward-looking statements include, but are not limited to, estimates with respect to the financial condition, results of operations and business of the Company and the Bank, the banking industry, the economy in general, expectations of the business environment in which the Company operates, projections of future performance and other statements contained herein that are not historical facts. These remarks are based upon current management expectations, and may, therefore, involve risks and uncertainties that cannot be predicted or quantified and are beyond the Company's control and are subject to a variety of uncertainties that could cause future results to vary materially from the Company's historical performance, or from current expectations. 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) the ability of the Bank to comply with its written agreement with the Office of the Comptroller of the Currency (the "OCC") or the individual minimum capital ratios for the Bank established by the OCC; (ii) the Company's ability to attract and retain key management and staff; (iii) changes in business strategy or an inability to successfully execute strategy due to the occurrence of unanticipated events; (iv) the ability to attract deposits and other sources of liquidity; (v) changes in the financial performance and/or condition of the Bank's borrowers; (vi) changes in consumer spending, borrowing and saving habits; (vii) the ability to increase market share and control expenses; (viii) changes in estimates of future loan loss reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements; (ix) local, regional and national economic conditions and events and the impact they may have on the Company and its customers; (x) volatility in the credit and equity markets and its effect on the general economy; (xi) the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs; (xii) the overall quality of the composition of the Company's loan and securities portfolios; (xiii) inflation, interest rate, securities market and monetary fluctuations;(xiv) legislative and regulatory changes, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and the implementing of regulations, changes in banking, securities and tax laws and regulations and their application by regulators and changes in the scope and cost of the Federal Deposit Insurance Corporation insurance and other coverages; (xv) the effects of, and changes in, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; (xvi) competition among providers of financial services; (xvii) other economic, competitive, governmental, regulatory and technological factors affecting our operations, pricing, products and services and the other risks 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, the Company's Form 10-Q for the quarters ended March 31, 2015 and June 30, 2015 and in other filings made pursuant to the Securities Exchange Act of 1934, as amended. No undue reliance should be placed 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 such 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 September 30, 2015, June 30, 2015, March, 31, 2015, December 31, 2014, and September 30, 2014.

Return on Average Tangible Equity (dollars in thousands)

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