MOUNT LAUREL, N.J., April 27, 2017 /PRNewswire/ --  

First Quarter Highlights:

• Quarterly net income of $1.4 million, or $0.07 per diluted share, compared to $826 thousand, or $0.04 per diluted share, in the prior year quarter; pre-tax earnings of $2.1 million compared to $1.1 million in the prior year quarter.
• Ongoing expense control with quarterly operating expenses of $16.1 million in the first quarter as compared to $16.5 million in the prior year quarter.
• Average commercial loans grew 10% annualized in the first quarter and 10% since March 31, 2016.
• No provision for loan losses in the first quarter as asset quality remains strong; non-performing loans of $4.1 million represents 0.25% of total assets at March 31, 2017.
• Solid foundation with Sun Bancorp, Inc.'s total risk-based capital ratio of 21.9%, tier 1 common ratio of 15.8% and leverage capital ratio of 14.5% at March 31, 2017.
• Board of Directors declared a dividend of $0.01 per share to holders of record of the common stock of Sun Bancorp, Inc. on May 23, 2017, payable on June 6, 2017.

Sun Bancorp, Inc. (NASDAQ: SNBC), (the "Company"), the holding company for Sun National Bank (the "Bank"), today reported net income of $1.4 million, or $0.07 per diluted share, for the quarter ended March 31, 2017, compared to net income of $56.0 million, or $2.94 per diluted share, for the quarter ended December 31, 2016, and net income of $826 thousand, or $0.04 per diluted share, for the quarter ended March 31, 2016. The quarter ended December 31, 2016 included a deferred tax asset valuation allowance reversal of $53.7 million.

"This quarter's results are a continuation of the positive direction we have seen in Sun's core profitability over the past two years," stated President & CEO Thomas M. O'Brien.  "Our strategy continues to focus on growing relationship commercial real estate ("CRE") and commercial and industrial ("C&I") loans, funded with relationship deposits while maintaining a solid capital foundation and conservative risk management practices.  We believe that this approach provides for consistently improved quality of earnings over time."

Discussion of Results:

Balance Sheet

Total assets remained steady at March 31, 2017 as compared to December 31, 2016, at $2.26 billion for both periods. Cash and cash equivalents totaled $128.9 million at March 31, 2017, as compared to $134.2 million at December 31, 2016.  The decrease in cash and cash equivalents during the first quarter of 2017 was primarily due to a $7.3 million reduction in deposits. 

Investments increased by $3.8 million in the first quarter of 2017 to $315.6 million from $311.7 million in the prior linked quarter due to purchases of investment securities, including $18.0 million of primarily variable rate mortgage-backed securities, partially offset by $16.0 million in pay downs.

Net loans remained essentially flat at March 31, 2017 at $1.59 billion as compared to December 31, 2016, but the Bank continued to experience a shift in business mix from consumer loans to relationship commercial loans.  Loan origination and refinancing activity in the CRE business slowed during the first quarter due to higher interest rates.  As a result of the reduction in originations, non-owner occupied CRE loans fell by $13.5 million in the first quarter.  Offsetting this runoff, the Bank experienced continued momentum in its C&I business segment.  The C&I segment, which includes owner-occupied CRE and C&I, grew by $25.0 million in the first quarter.  Offsetting this growth was a continued reduction in residential and home equity loans which fell by $11.0 million in the first quarter as the result of the Bank's commercially-focused strategy.

Net loans receivable increased by $34.8 million, or 2%, as compared to the quarter ended March 31, 2016, primarily due to an increase of $93.4 million, or 8%, in the commercial loan portfolio and a decrease of $60.8 million, or 16%, in the consumer loan portfolio. The C&I segment loans grew by $50.9 million, or 12%, and the CRE non-owner occupied segment grew by $61.7 million, or 9%. 

"The Bank's trend of growing the commercial loan book continued," said O'Brien.  "Although recent rate increases have slowed some commercial activity, both the period-end and average balances of our commercial loan portfolios increased in the first quarter.  We also saw a second consecutive quarter of meaningful growth in our C&I business segment with growth of $39.6 million, or 18% annualized, since September 30, 2016.  Despite good commercial loan originations this quarter, total loans outstanding remained essentially flat as commercial loan growth was offset by both expected consumer loan runoff and commercial loan pay offs.  While the rising rate environment may temper commercial loan demand, our team continues to evaluate quality opportunities.  We remain disciplined and have not compromised our risk management approach at the expense of aggressive growth."

Total deposits were $1.73 billion at March 31, 2017, as compared to $1.74 billion at December 31, 2016 and $1.70 billion at March 31, 2016. The cost of deposits increased by one basis point to 39 basis points compared to the prior linked quarter and increased by nine basis points as compared to the three months ended March 31, 2016 due to the impact of the recent increase in market interest rates in 2016 and growth in retail certificates of deposit.  While total deposits fell by $7.3 million in the first quarter, approximately $12 million was from activity in one large interest-bearing commercial deposit account.  Non-interest demand deposit accounts rose by $7.9 million while retail certificates of deposit grew by $5.3 million.

Net Interest Income and Margin

Net interest income was $14.8 million for the quarter ended March 31, 2017, compared to $14.5 million for the quarter ended March 31, 2016.  Net interest income remained relatively flat compared to the quarter ended December 31, 2016.  The Company's net interest margin was 2.93% for the three months ended March 31, 2017 and December 31, 2016, as compared to 2.91% for the quarter ended March 31, 2016.  The two basis point increase in net interest margin from the quarter ended March 31, 2016 is due primarily to commercial loan growth along with a reduction in low-yielding interest-earning bank balances partially offset by the impact of an increase in the average cost of time deposits as interest rates have increased.

"Recent increases in market interest rates can be expected to provide some improvements in net interest margin due to our asset-sensitive position," stated O'Brien.  "We remain diligent in our efforts to deploy liquidity prudently with a longer term view."

Non-Interest Income

Non-interest income was $3.4 million for the quarter ended March 31, 2017, as compared to $3.3 million and $3.2 million for the quarters ended December 31, 2016 and March 31, 2016, respectively.  The increase in non-interest income from the quarter ended March 31, 2016 is due primarily to two loan related fees totaling $550 thousand recorded in the first quarter of 2017.  Deposit service charges and fees and investment products income continue to be soft due to competitive pressures and market uncertainty.

Non-Interest Expense

Non-interest expense for the first quarter of 2017 was $16.1 million as compared to $15.4 million for the three months ended December 31, 2016 and $16.5 million for the three months ended March 31, 2016.  The increase in non-interest expense from the prior linked quarter is due primarily to an increase of $956 thousand in salaries and benefits as a result of the timing of accrual adjustments in the prior linked quarter and a seasonal increase in payroll taxes in the three months ended March 31, 2017.  This increase was partially offset by decreases of $167 thousand and $160 thousand related to equipment and advertising expenses, respectively.  Non-interest expense for the first quarter of 2017 declined by $462 thousand from the first quarter of 2016, primarily due to a decrease of $393 thousand in insurance expense as a result of reductions in FDIC assessment rates, a decrease of $181 thousand in salaries and employee benefit expense, as well as a decrease of $169 thousand in data processing expense due to efficiency gains, partially offset by a $300 thousand expense related to an outstanding letter of credit on a previously-sold legacy loan.

"Historically, first quarter operating expenses at the Company have been elevated above other quarters due to seasonal increases in payroll and snow removal costs," said O'Brien.  "However, our diligent efforts in expense and vendor management led to continued improvements over previous first quarter periods."

Asset Quality

Non-performing loans increased by $976 thousand to $4.1 million, or 0.25% of gross loans, at March 31, 2017 from $3.1 million, or 0.19% of gross loans, at December 31, 2016.  This increase was primarily due to $978 thousand of residential mortgage loans entering non-accrual status during the three months ended March 31, 2017. 

There was no provision for loan losses during the quarters ended March 31, 2017, December 31, 2016 and March 31, 2016.  In the first quarter of 2017, the Bank recorded net recoveries of $175 thousand as compared to net charge-offs of $285 thousand in the fourth quarter of 2016 and net charge-offs of $56 thousand in the first quarter of 2016.  The allowance for loan losses was $15.7 million, or 0.98% of gross loans at March 31, 2017 as compared to $15.5 million, or 0.97% of gross loans at December 31, 2016 and $18.0 million, or 1.14% of gross loans at March 31, 2016.  The allowance for loan losses was 385% of non-performing loans at March 31, 2017 as compared to 501% at December 31, 2016 and 460% at March 31, 2016.

"We remain pleased with our strong asset quality metrics," stated O'Brien.  "We will continue our practice of proactive credit risk management."

Capital

The Company's capital ratios continue to remain strong due to positive earnings and a relatively flat balance sheet.  The capital levels are sufficient to support the Company's anticipated growth. At March 31, 2017, the Bank's Tier 1 common equity risk-based capital ratio was 17.8%, total risk-based capital ratio 18.8%, Tier 1 risk-based capital ratio 17.8% and leverage capital ratio 13.4%. At March 31, 2017, 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 15.8%, 21.9%, 19.2%, and 14.5%, respectively.  The Company's tangible equity to tangible assets ratio was 12.8% at March 31, 2017, as compared to 12.7% at December 31, 2016 and 10.4% at March 31, 2016. 

Dividend Declaration

On April 25, 2017, the Board of Directors of the Company declared a dividend of $0.01 per share to holders of record of the common stock of the Company as of May 23, 2017, payable on June 6, 2017.

"This represents the Company's fourth consecutive quarterly cash dividend and represents another important milestone for Sun," stated O'Brien.

Conference Call

The Company will hold a conference call on Thursday, April 27, 2017 at 11:00 a.m. (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:          888-239-5359
• Conference ID:                                  1700508

A transcript of the conference call will be available at the Investor Relations section of www.sunnationalbank.com following the call.

About Sun Bancorp, Inc.

Sun Bancorp, Inc. (NASDAQ: SNBC) is a $2.26 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 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 Company's ability to attract and retain key management and staff; (ii) changes in business strategy or an inability to successfully execute strategy due to the occurrence of unanticipated events; (iii) the ability to attract deposits and other sources of liquidity; (iv) changes in the financial performance and/or condition of the Bank's borrowers; (v) changes in consumer spending, borrowing and saving habits; (vi) the ability to increase market share and control expenses; (vii) changes in estimates of future loan loss reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements; (viii) local, regional and national economic conditions and events and the impact they may have on the Company and its customers; (ix) volatility in the credit and equity markets and its effect on the general economy; (x) the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs; (xi) the overall quality of the composition of the Company's loan and securities portfolios; (xii) inflation, interest rate, securities market and monetary fluctuations;(xiii) legislative and regulatory changes, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and the implementing 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; (xiv) 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; (xv) competition among providers of financial services; (xvi) 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, 2016 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 March 31, 2017, December 31, 2016, September 30, 2016, June 30, 2016 and March 31, 2016.

 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, 2017, December 31, 2016, September 30, 2016, June 30, 2016 and March 31, 2016.