EX-99 2 exhibit99.htm EXHIBIT 99 - PRESS RELEASE exhibit99.htm

Sun Bancorp Inc Logo
 
 
 
 
 

For Immediate Release

Sun Bancorp, Inc. Announces 4Q 2014 Earnings
 
Contact:                 Mike Dinneen
Senior Vice President, Director of Marketing
(856) 552-5013
mdinneen@sunnb.com
 
 

MOUNT LAUREL, N.J. – January 26, 2015 –

 
Fourth Quarter Highlights

·  
Reported a net loss of $2.8 million for the quarter ended December 31, 2014 as compared to a net loss of $8.2 million for the quarter ended December 31, 2013 and a net loss of $29.8 million for the year ended December 31, 2014 as compared to a net loss of $9.9 million for the year ended December 31, 2013.
·  
Significant progress in execution of strategic restructuring initiative.
·  
Consolidated three branches and completed orderly exit of Sun Home Loans residential lending business and asset-based lending.
·  
Non-interest expense fell 27% to $23.7 million for the fourth quarter of 2014 as compared to $32.5 million for the fourth quarter of 2013.
·  
Fourth quarter expenses include a non-recurring charge of $2.3 million for leased office vacancy costs and a $0.8 million owned real estate write-down.
·  
$161 million decline in net loans held-for-investment in the quarter (10%) and $614 million reduction from December 31, 2013 (29%).
·  
Average interest-earning cash balances grew 24% during the quarter to $504.5 million.
·  
Non-performing assets/total assets fell six basis points from September 30, 2014 and 73 basis points from December 31, 2013 to 0.58% at December 31, 2014.
·  
Renegotiated lease on a major office facility, reducing long-term contractual obligations by approximately $15 million.

Sun Bancorp, Inc. (NASDAQ: SNBC) (the "Company"), the holding company for Sun National Bank (the “Bank”), reported today a net loss of $2.8 million, or a loss of $0.15 per diluted share, for the quarter ended December 31, 2014, compared to a net loss of $825 thousand, or a loss of $0.05 per diluted share, for the quarter ended September 30, 2014 and a net loss of $8.2 million, or a loss of $0.47 per diluted share, for the quarter ended December 31, 2013.

“During the fourth quarter, we brought several facets of our restructuring plans to completion, including the successful exit from our Sun Home Loans residential mortgage banking business and asset-based lending,” said President & CEO Thomas M. O’Brien. “In addition, we took further actions to rationalize our expense base and delivery platform, which included the consolidation of three branches, addressing our short and long-term occupancy needs and expenses.  The year 2014 was one of fundamental transition for the Company.  In the course of a few short months, we put enormous legacy costs behind us, successfully exited several higher risk business lines, restructured our geographic footprint, raised new equity capital, improved credit quality metrics to very strong measures and built a strong management as well as new lending teams.  This list of accomplishments represents a very focused and aggressive commitment of time and energy by both Management and the Board of Directors.  We would not have achieved such success in our restructuring efforts to date without that support.”

“We enter 2015 in much stronger financial condition and with the prospects for profitability finally in sight,” continued O’Brien.  “Absent the lease vacancy charge of $2.3 million and the owned real estate write-down of $0.8 million, the hint of some modest profitability is evident. Nonetheless, much remains to be done and our energies remain focused on concluding the difficult chapter of the past few years.  While we will continue to create further efficiencies in 2015, the primary focus will now turn to liquidity deployment and achieving sustained profitability.”

Discussion of Results:

Balance Sheet

The Bank has been reducing the size of its balance sheet over the past few quarters as it focuses internally on excess credit risk reduction and capital ratio improvement.  During the quarter, total assets fell $101.9 million due primarily to the reduction in the commercial loan portfolio from principal repayments.  Total assets were $2.72 billion at December 31, 2014, as compared to $2.82 billion at September 30, 2014 and $3.09 billion at December 31, 2013.
 
The Bank’s liquidity level remains high as cash and cash equivalents rose to $549.4 million at December 31, 2014, as compared to $504.4 million at September 30, 2014 and $267.8 million at December 31, 2013. The increase of $45.0 million in cash and cash equivalents in the fourth quarter of 2014 as compared to the prior quarter was due to commercial loan pay-downs, partially offset by a planned decrease in deposits.

Gross loans held-for-investment totaled $1.51 billion at December 31, 2014, as compared to $1.68 billion at September 30, 2014 and $2.14 billion at December 31, 2013.  The significant decline in gross loans held-for-investment is due primarily to commercial loan pay-downs and limited loan originations.  The decrease in loan originations is due to several factors, including a competitive environment, the Bank maintaining a very selective approach to new loan relationships, and the on-boarding of newly-hired lending teams.

Deposits were $2.09 billion at December 31, 2014, as compared to $2.17 billion at September 30, 2014 and $2.62 billion at December 31, 2013. The total quarterly cost of deposits fell by seven basis points to 0.31% in the current quarter as compared to the comparable prior year quarter due to planned run-off of higher yielding government and retail deposits.

The Company had $64.0 million in loans included in branch assets held-for-sale and $183.4 million in deposits held-for-sale at December 31, 2014 related to the pending sale of seven branch locations to Sturdy Savings Bank, which is scheduled to close in the first quarter of 2015. The Company expects to record a net gain of approximately $10 million on the sale of these locations primarily due to the premium on deposits.

“The Bank’s planned year-over-year reduction in both loan and deposit balances were a result of the accelerated exit of higher-risk, transactional loan relationships, and the re-pricing of certain non-strategic, higher rate deposit segments. We will continue to emphasize deep and profitable business relationships with our commercial and consumer clients while right-sizing our balance sheet to support that initiative,” said O’Brien.

Net Interest Income and Margin

The net interest margin declined 20 basis points to 2.67% for the three months ended December 31, 2014 from 2.87% in the linked third quarter as commercial loan balances continue to decline and the Company’s cash balances remain elevated. Average interest-earning cash balances increased by $98.7 million to $504.5 million for the three months ended December 31, 2014 as compared to $405.8 million in the linked third quarter.  For the year ended December 31, 2014, the net interest margin declined 12 basis points to 2.92% from 3.04% for the year ended December 31, 2013.  Average loans receivable declined by $343.7 million and average interest-earning cash balances increased $49.1 million from the year ended December 31, 2013 to the year ended December 31, 2014.

“The inevitable consequence of the major credit initiatives and balance sheet repositioning has been elevated liquidity positions,” said O’Brien.  “The price of liquidity is significant in this low interest rate environment.  While there appears to be some relief on rates coming in mid-2015, the opportunity to build a respectable level of profitability will predominately come from a continued focus on operating expenses as well as the sensible deployment of excess liquidity into appropriate earning assets.  As we enter 2015, we will actively pursue initiatives to invest our excess liquidity into assets that can generate a better return while supporting the Bank’s objectives of prudent risk management, relationship-building, and improved margins.”

Non-Interest Income

Non-interest income was $4.1 million for the quarter ended December 31, 2014, as compared to $4.7 million for the quarters ended September 30, 2014 and December 31, 2013. The decrease from the linked quarter of $553 thousand was primarily attributable to a decline of $394 thousand in net mortgage banking revenue as the Company completed its orderly unwind of Sun Home Loans.  There also were normal seasonal declines in service charges on deposits and investment products income.  The decrease in non-interest income from the prior year quarter is primarily due to a decline in net mortgage banking revenue of $971 thousand from the fourth quarter of 2013 to $29 thousand for the fourth quarter of 2014 as the Company completed its orderly unwind of Sun Home Loans.  This was partially offset by a decline in negative credit value adjustments of $666 thousand from the fourth quarter of 2014 compared to the fourth quarter of 2013. This change was due to swap termination charges recorded in the prior year quarter.

“Now that we have exited the residential lending business, our non-interest income sources will be primarily comprised of wealth management and deposit-related revenue,” said O’Brien.

Non-Interest Expense

Non-interest expense for the fourth quarter of 2014 was $23.7 million, a decrease of $427 thousand from the third quarter of 2014 and a decrease of $8.8 million from the fourth quarter of 2013. Salaries and benefits expense declined by $2.1 million from the third quarter of 2014 due primarily to the impact of the workforce reduction announced in the second quarter. Several other categories declined as the Company’s cost reduction measures continue to be implemented.  These decreases were partially offset by an increase of $2.5 million in occupancy expense due primarily to a $2.3 million charge recorded in the fourth quarter of 2014 for the write-down of the value of excess leased office space.  The current quarter also included a $768 thousand write down on one other real estate owned property based on an updated appraisal.  Significant expense reductions from the fourth quarter of 2013 include a decrease of $3.9 million in salaries and benefits expense, $3.7 million in professional fees, $884 thousand in commission expense and $517 thousand in advertising expense.

“In the last two quarters, we have begun to see our historically-elevated expenses decrease. We expect to have a normalized non-interest expense beginning the third quarter of 2015, at which time we estimate our annualized expense rate to be between $75 and $80 million,” said O’Brien. The Company’s 2014 and 2013 non-interest expense was $109.4 million and $129.9 million, respectively.

In addition, the level of operating expenses for the fourth quarter in each of 2012 and 2013 has approximated $32 million while the expense level in the fourth quarter of 2014, excluding the non-recurring excess leased space charge of $2.3 million was $21.4 million, a reduction of $11.1 million, or 34%, from the comparable prior year quarter.

“We continue to aggressively consolidate both our back office and branch locations and will continue to seek opportunities to divest non-strategic branch locations as well as consolidate office space,” said O’Brien.  “Our Strategic Plan contemplates further reduction of our branch network to between 30 and 35 locations, through a careful combination of consolidations and/or sales, which should produce further expense reductions.  We have not entered into any agreements nor submitted any applications to our regulator with respect to any location at this time.”

In addition to recognizing excess leased space charges and the consolidation of three retail branch locations, in January 2015, the Bank successfully executed the term reduction of a long-term lease on a large back office facility, reducing its term by ten years and long-term lease obligations by approximately $15 million. (change)

Asset Quality

The Bank continued to reduce its non-performing loans held-for-investment in the fourth quarter as the balance declined by $3.0 million, or 21%, to $11.0 million at December 31, 2014 as compared to $14.1 million at September 30, 2014.  Non-performing loans held-for-investment to total gross loans held-for-investment declined to 0.7% at December 31, 2014 compared to 0.8% at September 30, 2014 and 1.8% at December 31, 2013.

There was no provision expense recorded during the fourth quarter of 2014 or in the linked quarter as compared to $2.1 million in the fourth quarter of 2013, reflecting the Bank’s substantially-improved asset quality metrics.  Net charge-offs were $3.3 million in the three months ended December 31, 2014 as compared to $1.9 million in the third quarter of 2014 and net charge-offs of $15.5 million in the fourth quarter of 2013.  During the fourth quarter, the Bank transferred $4.3 million of problem consumer loans to held-for-sale, which resulted in a charge-off of $2.7 million.  The allowance for loan losses was $23.2 million, or 1.54% of gross loans held-for-investment, at December 31, 2014, as compared to $26.5 million, or 1.58% of gross loans held-for-investment, at September 30, 2014 and $35.5 million, or 1.66% of gross loans held-for-investment, at December 31, 2013. 

Capital

At December 31, 2014, the capital ratios of the Company and the Bank increased due to planned balance sheet runoff.  At December 31, 2014, the Bank’s total risk-based capital ratio, Tier 1 capital ratio and leverage capital ratio were approximately 17.3%, 16.1%, and 9.7%, respectively.  At December 31, 2014, the Company’s total risk-based capital ratio, Tier 1 capital ratio and leverage capital ratio were approximately 19.3%, 16.7%, and 10.1%, respectively.  The Company’s tangible equity to tangible assets ratio was 7.7% at December 31, 2014, as compared to 7.5% at September 30, 2014 and 6.8% at December 31, 2013.

The Company will hold a conference call on Monday, January 26, 2015 at 11:00 AM (EST) 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:
·  
Toll-free participant dial-in: 888-337-8169
·  
Conference ID: 6000271

Sun Bancorp, Inc. (NASDAQ: SNBC) is a $2.72 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, anticipated reductions in non-interest expenses and the anticipated closing of the sale of certain branches in the first quarter of 2015. 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; that we will experience anticipated reductions in non-interest expenses; or that the closing of the sale of certain branches in the first quarter of 2015 will be completed successfully. 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; (vi) the cost of compliance with the agreement; (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, 2013, the Company's Form 10-Q for the three months and periods ended September 30, 2014, June 30, 2014 and March 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. Tangible book value per common share is a non-GAAP financial measure.  Tangible book value per common share is a ratio of tangible equity, shareholder’s equity less intangible assets, to total outstanding common shares. Intangible assets at December 31, 2014, September 30, 2014, June 30, 2014, March 31, 2014, and December 31, 2013 were $38.2 million, $38.2 million, $38.4 million, $38.7 million, and $39.0 million, respectively.  Non-GAAP financial measures also include return on average tangible equity.  Management believes that tangible book value per common share and return on average tangible equity are meaningful 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 December, 31, 2014, September 30, 2014, June 30, 2014, March 31, 2014, and December 31, 2013.

 
December 31, 2014
 
September 30, 2014
 
June 30, 2014
 
March 31, 2014
 
December 31, 2013
                   
Tangible book value per common share:
                 
   Shareholders’ equity
$
245,324
 
$
247,047
 
$
227,656
 
$
248,898
 
$
245,337
  Less: Intangible assets
 
38,188
   
38,188
   
38,426
   
38,709
   
38,993
Tangible equity
$
207,136
 
$
208,859
 
$
189,230
 
$
210,189
 
$
206,344
                             
  Common stock
 
18,898
   
18,885
   
17,752
   
17,742
   
17,742
  Less: Treasury stock
 
277
   
300
   
319
   
389
   
399
Total outstanding shares
 
18,621
   
18,585
   
17,433
   
17,353
   
17,343
                             
Tangible book value per common share:
$
11.12
 
$
11.24
 
$
10.85
 
$
12.11
 
$
11.90

 
SUN BANCORP, INC. AND SUBSIDIARIES
     
FINANCIAL HIGHLIGHTS (Unaudited)
     
(Dollars in thousands, except share and per share amounts)
     
 
For the Three Months Ended
 
For the Year Ended
   
 
December 31,
 
December,
   
   
2014
 
2013
 
2014
 
2013
   
Profitability for the period:
                   
    Net interest income
 
$
17,026
 
$
21,935
 
$
77,951
 
$
89,765
   
    Provision for loan losses
   
-
   
2,135
   
14,803
   
1,647
   
    Non-interest income
   
4,142
   
4,742
   
17,763
   
31,680
   
    Non-interest expense
   
23,705
   
32,457
   
109,402
   
129,944
   
    Loss before income taxes
   
(2,537
)
 
(7,915
)
 
(28,491
)
 
(9,647
)
 
    Income tax benefit
   
292
   
297
   
1,317
   
297
   
    Net loss available to common shareholders
 
$
(2,829
)
$
(8,212
)
$
(29,808
)
$
(9,944
)
 
                             
Financial ratios:
                           
    Return on average assets(1)
   
(0.41)
%
 
(1.02)
%
 
(1.02)
%
 
(0.31)
%
 
    Return on average equity(1)
   
(4.5)
%
 
(12.8)
%
 
(12.0)
%
 
(3.8)
%
 
    Return on average tangible equity(1),(2)
   
(5.4)
%
 
(15.1)
%
 
(14.1)
%
 
(4.5)
%
 
    Net interest margin(1)
   
2.67
%
 
2.99
%
 
2.92
%
 
3.04
%
 
    Efficiency ratio
 
 
112
%
 
122
%
 
114
%
 
107
%
 
    Loss per common share:
                           
        Basic(3)
 
$
(0.15
)
$
(0.47)
 
$
(1.67
)
$
(0.58
)
 
        Diluted(3)  
 
$
(0.15
)
$
(0.47)
 
$
(1.67
)
$
(0.58
)
 
                             
    Average equity to average assets
   
8.95
%
 
8.17
%
 
8.52
%
 
8.09
%
 
               
   
December 31,
         
   
2014
2013
         
At period-end:
             
    Total assets
 
$
2,718,305
 
$
3,087,553
           
    Total deposits
   
2,093,609
   
2,621,571
           
    Loans receivable, net of allowance for loan losses
   
1,488,603
   
2,102,167
           
    Loans held-for-sale
   
4,083
   
20,662
           
Branch assets held-for-sale
   
69,064
   
-
           
Branch deposits held-for-sale
   
183,395
   
-
           
    Investments
   
409,950
   
457,797
           
    Borrowings
   
68,978
   
68,765
           
    Junior subordinated debentures
   
92,786
   
92,786
           
    Shareholders’ equity
   
245,324
   
245,337
           
                         
Credit quality and capital ratios:
                       
    Allowance for loan losses to gross loans held-for- investment
   
1.54
%
 
1.66
%
         
   Non-performing loans held-for-investment to gross loans
    held-for-investment
   
0.73
%
 
                  1.78
%
         
    Non-performing assets to gross loans held-for-investment, loans held-for-sale and real estate owned
   
1.03
%
 
1.87
%
         
    Allowance for loan losses to non-performing loans held-for-investment
   
210
%
 
94
%
         
                         
Total capital (to risk-weighted assets) (4):
                       
        Sun Bancorp, Inc.
   
19.25
%
 
14.41
%
         
        Sun National Bank
   
17.33
%
 
13.65
%
         
Tier 1 capital (to risk-weighted assets) (4):
                       
        Sun Bancorp, Inc.
   
16.73
%
 
12.34
%
         
        Sun National Bank
   
16.08
%
 
12.40
%
         
Leverage ratio:
                       
        Sun Bancorp, Inc.
   
10.06
%
 
8.99
%
         
        Sun National Bank
   
9.68
%
 
9.02
%
         
                         
    Book value per common share
 
$
13.18
 
$
14.15
           
    Tangible book value per common share
 
$
11.12
 
$
11.90
           
(1) Amounts for the three months ended are annualized.
(2) Return on average tangible equity, a non-GAAP measure, is computed by dividing annualized net income for the period by average tangible equity. Average tangible equity equals average equity less average identifiable intangible assets and goodwill.
(3) Prior periods were retroactively adjusted for the impact of the 1-for-5 reverse stock split completed on August 11, 2014.
(4) December 31, 2014 capital ratios are estimated, subject to regulatory filings.
 

 
SUN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
(Dollars in thousands, except par value amounts)
 
December 31, 2014
 
December 31, 2013
 
ASSETS
       
Cash and due from banks
$
43,491
 
$
38,075
 
Interest-earning bank balances
 
505,885
   
229,687
 
Cash and cash equivalents
 
549,376
   
267,762
 
  Restricted cash
 
13,000
   
26,000
 
Investment securities available for sale (amortized cost of $394,733 and $452,023 at December 31, 2014 and December 31, 2013, respectively)
 
394,500
   
440,097
 
Investment securities held to maturity (estimated fair value of $501 and $692 at December 31, 2014 and December 31, 2013, respectively)
 
489
   
681
 
Loans receivable (net of allowance for loan losses of $23,246 and $35,537 at December 31, 2014 and December 31, 2013, respectively)
 
1,488,603
   
2,102,167
 
Loans held-for-sale, at lower of cost or market
 
4,083
   
-
 
Loans held-for-sale, at fair value
 
-
   
20,662
 
Branch assets held-for-sale
 
69,064
   
-
 
Restricted equity investments, at cost
 
14,961
   
17,019
 
Bank properties and equipment, net
 
40,155
   
49,095
 
Real estate owned
 
522
   
2,503
 
Accrued interest receivable
 
5,397
   
7,112
 
Goodwill
 
38,188
   
38,188
 
Intangible assets
 
-
   
805
 
Deferred taxes, net
 
-
   
4,575
 
Bank owned life insurance (BOLI)
 
79,132
   
77,236
 
Other assets
 
20,835
   
33,651
 
Total assets
$
2,718,305
 
$
3,087,553
 
             
LIABILITIES AND SHAREHOLDERS’ EQUITY
           
Liabilities:
           
Deposits
$
2,093,609
 
$
2,621,571
 
Branch deposits held-for-sale
 
183,395
   
-
 
Securities sold under agreements to repurchase – customers
 
1,156
   
478
 
Advances from the Federal Home Loan Bank of New York (FHLBNY)
 
60,787
   
60,956
 
Obligations under capital lease
 
7,035
   
7,331
 
Junior subordinated debentures
 
92,786
   
92,786
 
Deferred taxes, net
 
1,823
   
-
 
Other liabilities
 
32,390
   
59,094
 
Total liabilities
 
2,472,981
   
2,842,216
 
             
Shareholders’ equity:
           
Preferred stock, $1 par value, 1,000,000 shares authorized; none issued
 
-
   
-
 
Common stock, $5 par value, 40,000,000 shares authorized; 18,900,877 shares issued and 18,615,950 shares outstanding at December 31, 2014; 17,742,207 shares issued and 17,342,883 shares outstanding at December 31, 2013(1)
 
94,508
   
88,711
 
Additional paid-in capital
 
514,071
   
506,719
 
Retained deficit
 
(347,761
)
 
(317,954
)
Accumulated other comprehensive loss
 
(138
)
 
(7,055)
 
Deferred compensation plan trust
 
(599
)
 
(522
)
Treasury stock at cost, 284,927 shares at December 31, 2014; and 399,324 shares at December 31, 2013(1)
 
(14,757
)
 
(24,562
)
Total shareholders’ equity
 
245,324
   
245,337
 
Total liabilities and shareholders’ equity
$
2,718,305
 
$
3,087,553
 
(1) Prior period share data was retroactively adjusted for the impact of the 1-for-5 reverse stock split completed on August 11, 2014

 
 

 

SUN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in thousands, except per share amounts)
                         
   
For the Three Months
Ended December 31,
     
For the Year Ended December 31,
 
   
2014
   
2013
     
2014
   
2013
 
INTEREST INCOME
                         
Interest and fees on loans
$
17,204
 
$
22,752
   
$
79,427
 
$
96,172
 
Interest on taxable investment securities
 
2,132
   
2,219
     
8,715
   
6,668
 
Interest on non-taxable investment securities
 
309
   
310
     
1,232
   
1,338
 
Dividends on restricted equity investments
 
195
   
219
     
838
   
904
 
Total interest income
 
19,840
   
25,500
     
90,212
   
105,082
 
INTEREST EXPENSE
                         
Interest on deposits
 
1,832
   
2,576
     
8,358
   
11,349
 
Interest on funds borrowed
 
439
   
444
     
1,753
   
1,776
 
Interest on junior subordinated debentures
 
543
   
545
     
2,150
   
2,188
 
Total interest expense
 
2,814
   
3,565
     
12,261
   
15,313
 
Net interest income
 
17,026
   
21,935
     
77,951
   
89,769
 
PROVISION FOR LOAN LOSSES
 
-
   
2,135
     
14,803
   
1,147
 
Net interest income after provision for loan losses
 
17,026
   
19,800
     
63,148
   
88,622
 
NON-INTEREST INCOME
                         
Service charges on deposit accounts
 
2,152
   
2,263
     
8,803
   
9,056
 
Mortgage banking revenue, net
 
29
   
1,000
     
1,219
   
11,598
 
Gain on sale of investment securities
 
-
   
-
     
50
   
3,489
 
Investment products income
 
480
   
599
 
   
2,447
   
2,684
 
BOLI income
 
482
   
466
     
1,896
   
1,882
 
Derivative credit valuation adjustment
 
(43
)
 
(710
)
   
(1,232
)
 
(1,588
)
Other
 
1,042
   
1,124
     
4,580
   
4,560
 
Total non-interest income
 
4,142
   
4,742
     
17,763
   
31,681
 
NON-INTEREST EXPENSE
                         
Salaries and employee benefits
 
9,198
   
13,070
     
49,339
   
53,037
 
Commission expense
 
214
   
1,098
     
2,475
   
7,696
 
Occupancy expense
 
5,432
   
3,406
     
16,230
   
13,519
 
Equipment expense
 
1,487
   
1,871
     
7,287
   
7,356
 
Amortization of intangible assets
 
-
   
455
     
805
   
2,457
 
Data processing expense
 
1,202
   
1,223
     
4,979
   
4,244
 
Professional fees
 
1,225
   
4,891
     
6,487
   
18,246
 
Insurance expenses
 
1,299
   
1,498
     
5,567
   
5,966
 
Advertising expense
 
386
   
903
     
2,062
   
2,830
 
Problem loan expense
 
547
   
769
     
2,039
   
3,407
 
Real estate owned expense, net
 
807
   
529
     
1,724
   
2,270
 
Office supplies expense
 
221
   
245
     
974
   
857
 
Other
 
1,687
   
2,499
     
9,434
   
8,064
 
Total non-interest expense
 
23,705
   
32,457
     
109,402
   
129,949
 
LOSS BEFORE INCOME TAXES
 
(2,537
)
 
(7,915)
     
(28,491
)
 
(9,646
)
INCOME TAX EXPENSE
 
292
   
297
     
1,317
   
297
 
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS
$
(2,829
)
$
 (8,212
)
 
$
(29,808
)
$
(9,943
)
                           
Basic loss per share(1)
$
(0.15
)
$
(0.47
)
 
$
(1.67
)
$
(0.58
)
Diluted loss per share(1)
$
(0.15
)
$
  (0.47
)
 
$
(1.67
)
$
(0.58
)
Weighted average shares – basic(1)
18,589,717
 
17,316,673
   
17,830,018
 
17,283,162
 
Weighted average shares - diluted(1)
18,589,717
 
17,316,673
   
17,830,018
 
17,283,162
 
(1) Prior periods were retroactively adjusted for the impact of the 1-for-5 reverse stock split completed on August 11, 2014

 
 

 

 
SUN BANCORP, INC. AND SUBSIDIARIES
 
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)
 
(Dollars in thousands)
 
 
2014
 
2014
 
2014
 
2014
 
2013
 
 
Q4
 
Q3
 
Q2
 
Q1
 
Q4
 
Balance sheet at quarter end: 
                   
Cash and cash equivalents
 $
549,376
 
$
504,353
 
 $
330,440
 
$
282,095
 
$
267,762
 
Restricted cash
 
13,000
   
13,000
   
26,000
   
26,000
   
26,000
 
Investment securities
 
409,950
   
425,079
   
454,051
   
456,724
   
457,797
 
Loans held-for-investment: 
                             
        Commercial and industrial
 
1,052,932
   
1,196,767
   
1,363,900
   
1,519,993
   
1,587,566
 
        Home equity 
 
156,926
   
151,369
   
165,671
   
184,936
   
188,478
 
        Second mortgage 
 
17,239
   
21,858
   
21,282
   
23,312
   
25,279
 
        Residential real estate 
 
276,993
   
299,838
   
298,063
   
326,945
   
305,552
 
        Other 
 
7,759
   
6,577
   
7,200
   
28,894
   
30,829
 
            Total gross loans held-for-investment
 
1,511,849
   
1,676,409
   
1,856,116
   
2,084,080
   
2,137,704
 
Allowance for loan losses 
 
(23,246
)
 
(26,540
)
 
(28,392
)
 
(33,768
)
 
(35,537
)
            Net loans held-for-investment
 
1,488,603
   
1,649,869
   
1,827,724
   
2,050,312
   
2,102,167
 
   Loans held-for-sale
 
4,083
   
7,365
   
29,171
   
16,048
   
20,662
 
   Branch assets held-for-sale
 
69,064
   
31,408
   
34,058
   
-
       
    Goodwill 
 
38,188
   
38,188
   
38,188
   
38,188
   
38,188
 
    Intangible assets
 
-
   
-
   
238
   
521
   
805
 
    Total assets 
 
2,718,305
   
2,820,202
   
2,894,658
   
3,038,467
   
3,087,553
 
   Total deposits
 
2,093,609
   
2,170,627
   
2,272,765
   
2,573,445
   
2,621,571
 
   Branch deposits held-for-sale
 
183,395
   
192,068
   
160,769
   
-
   
-
 
    Securities sold under agreements to repurchase - customers
 
1,156
   
963
   
670
   
471
   
478
 
    Advances from FHLBNY
 
60,787
   
60,830
   
60,873
   
60,915
   
60,956
 
    Obligations under capital lease
 
7,035
   
7,111
   
7,191
   
7,259
   
7,331
 
    Junior subordinated debentures
 
92,786
   
                                   92,786
   
92,786
   
92,786
   
92,786
 
    Total shareholders' equity
 
245,324
   
247,047
   
227,656
   
248,898
   
245,337
 
Quarterly average balance sheet: 
                             
    Loans(1)
                             
        Commercial and industrial 
$
1,145,297
 
$
1,292,705
 
$
1,480,491
 
$
1,560,442
 
$
1,621,222
 
        Home equity
 
175,969
   
179,226
   
185,710
   
187,052
   
190,394
 
        Second mortgage 
 
20,872
   
22,528
   
24,358
   
24,863
   
26,142
 
        Residential real estate
 
301,326
   
322,751
   
338,028
   
331,433
   
312,977
 
        Other
 
3,391
   
3,755
   
23,196
   
25,014
   
26,134
 
            Total gross loans 
 
1,646,855
   
1,820,965
   
2,051,783
   
2,128,804
   
2,176,869
 
    Securities and other interest-earning assets 
 
923,909
   
840,541
   
694,529
   
677,850
   
782,200
 
    Total interest-earning assets 
 
2,570,764
   
2,661,506
   
2,746,312
   
2,806,654
   
2,959,069
 
    Total assets 
 
2,785,525
   
2,888,920
   
2,982,427
   
3,049,321
   
3,205,900
 
    Non-interest-bearing demand deposits 
 
608,396
   
612,775
   
573,290
   
559,606
   
585,530
 
Total deposits
 
2,331,934
   
2,429,606
   
2,519,901
   
2,584,588
   
2,718,905
 
    Total interest-bearing liabilities 
 
1,885,250
   
1,978,480
   
2,108,103
   
2,186,394
   
2,295,072
 
    Total shareholders' equity 
 
249,313
   
243,020
   
254,116
   
250,946
   
256,783
 
Capital and credit quality measures:
                             
Total capital (to risk-weighted assets) (2):
                             
        Sun Bancorp, Inc.
 
19.4
%
 
  17.9
%
 
  15.0
%
 
14.9
%
 
  14.4
%
        Sun National Bank
 
17.5
%
 
  16.2
%
 
  14.5
%
 
  14.1
%
 
  13.7
%
    Tier 1 capital (to risk-weighted assets) (2):
                             
        Sun Bancorp, Inc.
 
16.9
%
 
15.6
%
 
12.4
%
 
12.8
%
 
12.3
%
        Sun National Bank
 
16.2
%
 
14.9
%
 
13.2
%
 
12.8
%
 
12.4
%
    Leverage ratio:
                             
        Sun Bancorp, Inc.
 
10.1
%
 
9.8
%
 
8.6
%
 
9.4
%
 
9.0
%
        Sun National Bank
 
9.7
%
 
9.4
%
 
9.1
%
 
9.5
%
 
9.0
%
                               
    Average equity to average assets
 
9.0
%
 
8.4
%
 
8.5
%
 
8.2
%
 
8.0
%
    Allowance for loan losses to total gross loans held-for-investment 
 
1.54
%
 
 
1.58
%
 
 
1.50
%
 
 
1.62
%
 
 
1.66
%
   Non-performing loans held-for-investment to gross loans held-for-investment
 
0.73
%
 
0.84
%
 
0.76
%
 
1.80
%
 
1.78
 
%
    Non-performing assets to gross loans held-for-investment, loans held-for-sale and real estate owned
 
1.03
%
 
1.07
%
 
1.02
%
 
1.91
%
 
1.9
%
    Allowance for loan losses to non-performing loans held-for-investment
 
 
210
%
 
 
188
%
 
 
202
%
 
 
90
%
 
 
94
%
                               
Other data:
                             
Net charge-offs
 
(3,294)
   
(1,852)
   
(20,179)
   
(1,768)
   
(15,452
)
Non-performing assets:
                             
           Non-accrual loans
$
10,729
 
$
13,561
 
$
13,470
 
$
29,387
 
$
29,811
 
       Non-accrual loans held-for-sale
 
4,083
   
2,770
   
4,086
   
-
   
-
 
           Troubled debt restructurings, non-accrual
 
318
   
528
   
583
   
8,017
   
8,166
 
           Troubled debt restructurings, held-for-sale
 
-
   
-
   
-
   
-
   
-
 
           Loans past due 90 days and accruing
 
-
   
-
   
-
   
42
   
-
 
           Real estate owned, net 
 
522
   
1,084
   
1,327
   
2,728
   
2,503
 
                Total non-performing assets
15,652
   
   17,943
   
19,466
 
$
40,174
 
 $
40,480
 
(1) Average balances include non-accrual loans and loans held-for-sale.
(2) December 31, 2014 capital ratios are estimated, subject to regulatory filings.
 

 
 

 


SUN BANCORP, INC. AND SUBSIDIARIES
 
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)
 
(Dollars in thousands, except share and per share amounts)
 
 
2014
 
2014
 
2014
 
2014
 
2013
 
 
Q4
 
Q3
 
Q2
 
Q1
 
Q4
 
Profitability for the quarter:
                   
Net interest income
$
17,026
 
$
18,921
 
$
20,612
 
$
21,392
 
$
21,935
 
Provision for loan losses
 
-
   
-
   
14,803
   
-
   
2,135
 
Non-interest income
 
4,142
   
4,695
   
3,977
   
4,949
   
4,742
 
Non-interest expense excluding amortization of intangible assets
 
23,705
   
23,894
   
33,394
   
27,604
   
32,002
 
Amortization of intangible assets
 
-
   
238
   
283
   
284
   
455
 
Loss before income taxes
 
(2,537
)
 
(516
)
 
(23,891)
   
(1,547
)
 
(7,915
)
Income tax expense
 
292
   
309
   
357
   
359
   
297
 
Net loss available to common shareholders
$
 
 
(2,829
 
 
)
$
 
 
(825
 
 
)
$
 
 
(24,248)
 
$
 
 
(1,906)
 
$
 
 
 (8,212
)
Financial ratios:
                             
Return on average assets (1)
 
(0.41)
%
 
(0.11)
%
 
(3.25)
%
 
(0.25)
%
 
(1.02)
%
Return on average equity (1)
 
(4.5)
%
 
(1.4)
%
 
(38.2)
%
 
(3.0)
%
 
(12.8)
%
Return on average tangible equity (1),(2)
 
(5.4)
%
 
(1.6)
%
 
(45.0)
%
 
             (3.6)
%
 
 (15.1)
%
Net interest margin (1)
 
2.67
%
 
2.87
%
 
3.03
%
 
3.07
%
 
2.99
%
Efficiency ratio
 
112
%
 
                                   95
%
 
                                              137
%
 
106
%
 
122
%
Per share data:
                             
Loss per common share:
                             
Basic(3)
$
(0.15
)
$
(0.05
)
$
(1.39
)
$
(0.11)
 
$
(0.47
)
Diluted(3)
$
(0.15
)
$
(0.05
)
$
(1.39
)
$
(0.11)
 
$
(0.47
)
Book value(3)
$
13.18
 
$
13.29
 
$
13.06
 
$
14.34
 
$
14.15
 
Tangible book value(3)
$
11.12
 
$
11.24
 
$
10.85
 
$
12.11
 
$
11.90
 
Average basic shares(3)
18,589,717
 
17,949,643
 
17,417,829
 
17,348,169
 
17,316,673
 
Average diluted shares(3)
18,589,717
 
17,949,643
 
17,417,829
 
17,348,169
 
17,316,673
 
Non-interest income:
                             
Service charges on deposit accounts
$
2,152
 
$
2,285
 
$
2,215
 
$
2,151
 
$
2,263
 
Mortgage banking revenue, net
 
29
   
423
   
529
   
635
   
1,000
 
Net gain on sale of investment securities
 
-
   
-
   
50
   
-
   
-
 
Investment products income
 
480
   
635
   
715
   
617
   
599
 
BOLI income
 
482
   
484
   
469
   
461
   
466
 
Derivative credit valuation adjustment
 
(43
)
 
11
   
(1,162
)
 
(38
)
 
(710
)
Other income
 
1,042
   
857
   
1,161
   
1,123
   
1,124
 
        Total non-interest income
$
4,142
 
$
4,695
 
$
3,977
 
$
4,949
 
$
4,742
 
Non-interest expense:
                             
  Salaries and employee benefits
$
9,198
 
$
11,265
 
$
15,992
 
$
12,884
 
$
13,070
 
   Commission expense
 
214
   
   553
   
                                              811
   
    897
   
1,098
 
    Occupancy expense
 
5,432
   
2,980
   
3,552
   
4,266
   
3,406
 
    Equipment expense
 
1,487
   
1,695
   
2,356
   
1,749
   
1,871
 
    Amortization of intangible assets
 
-
   
     238
   
                                              283
   
                                     284
   
                                                455
 
    Data processing expense
 
1,202
   
1,299
   
1,281
   
1,197
   
1,223
 
    Professional fees
 
1,225
   
1,423
   
2,353
   
1,486
   
4,891
 
    Insurance expense
 
1,299
   
1,443
   
1,358
   
1,467
   
1,498
 
    Advertising expense
 
386
   
567
   
523
   
586
   
903
 
    Problem loan costs
 
547
   
294
   
566
   
632
   
769
 
    Real estate owned expense, net
 
807
   
71
   
702
   
144
   
529
 
    Office supplies expense
 
221
   
217
   
285
   
251
   
245
 
    Other expense
 
1,687
   
2,087
   
3,615
   
2,045
   
2,499
 
       Total non-interest expense
 $
23,705
 
 $
24,132
 
 $
33,677
 
27,888
 
 $
32,457
 
(1) Amounts are annualized.
(2) Return on average tangible equity is computed by dividing annualized net income for the period by average tangible equity. Average tangible
equity equals average equity less average identifiable intangible assets and goodwill.
(3) Prior periods were retroactively adjusted for the impact of the 1-for-5 reverse stock split completed on August 11, 2014.

 
 
 

 
SUN BANCORP, INC. AND SUBSIDIARIES
   
AVERAGE BALANCE SHEETS (Unaudited)
 
(Dollars in thousands)
           
 
 For the Three Months Ended December 31,
   
 
2014
   
2013
   
 
Average
 
Income/
 
Yield/
   
Average
 
Income/
 
Yield/
   
 
Balance
 
Expense
 
Cost
   
Balance
 
Expense
 
Cost
   
Interest-earning assets:
                           
Loans receivable (1),(2):
                           
Commercial and industrial
$
1,145,297
 
$
12,600
   
4.40
%
 
$
1,621,222
 
$
17,406
   
4.29
%
 
Home equity
 
175,969
   
1,778
   
4.04
     
190,394
   
1,853
   
3.89
   
Second mortgage
 
20,872
   
304
   
5.83
     
26,142
   
367
   
5.62
   
Residential real estate
 
301,326
   
2,471
   
3.28
     
312,977
   
2,671
   
3.41
   
Other
 
3,391
   
51
 
 
6.02
     
26,134
   
456
   
6.98
   
Total loans receivable
 
1,646,855
   
17,204
   
4.18
     
2,176,869
   
22,753
   
4.18
   
Investment securities(3)
 
419,391
   
2,479
   
2.36
     
439,788
   
2,693
   
2.45
   
Interest-earning bank balances
 
504,518
   
322
   
0.26
     
342,412
   
221
   
0.26
   
Total interest-earning assets
 
2,570,764
   
20,005
   
3.11
     
2,959,069
   
25,667
   
3.47
   
Non-interest earning assets:
                                       
  Cash and due from banks
 
50,655
                 
66,662
               
  Bank properties and equipment, net
 
44,802
                 
49,300
               
  Goodwill and intangible assets, net
 
38,188
                 
39,190
               
  Other assets
 
81,116
                 
91,679
               
Total non-interest-earning assets
 
214,761
                 
246,831
               
Total assets
$
2,785,525
               
$
3,205,900
               
                                         
Interest-bearing liabilities:
                                       
Interest-bearing deposit accounts:
                                       
Interest-bearing demand deposits
$
953,805
 
 $
565
   
0.24
%
 
$
1,223,184
 
 $
960
   
0.31
%
 
Savings deposits
 
246,876
   
151
   
0.24
     
268,196
   
195
   
0.29
   
Time deposits
 
522,857
   
1,116
   
0.85
     
641,995
   
1,421
   
0.89
   
Total interest-bearing deposit accounts
 
1,723,538
   
1,832
   
0.43
     
2,133,375
   
2,576
   
0.48
   
Short-term borrowings:
                                       
Fed Funds Purchased
 
-
   
-
   
-
     
54
   
-
   
-
   
Securities sold under agreements to repurchase - customers
 
1,054
   
-
   
-
     
512
   
-
   
-
   
Long-term borrowings:
                                       
FHLBNY advances (4)
 
60,802
   
317
   
2.09
     
60,981
   
320
   
2.10
   
Obligations under capital lease
 
7,070
   
122
   
6.90
     
7,364
   
124
   
6.74
   
Junior subordinated debentures
 
92,786
   
543
   
2.34
     
92,786
   
545
   
2.35
   
Total borrowings
 
161,712
   
982
   
2.43
     
161,697
   
989
   
2.45
   
Total interest-bearing liabilities
 
1,885,250
   
2,814
   
0.60
     
2,295,072
   
3,565
   
0.62
   
Non-interest bearing liabilities:
                                       
  Non-interest-bearing demand deposits
 
608,396
                 
585,530
             
  Other liabilities
 
42,563
                 
68,515
               
Total non-interest bearing liabilities
 
650,959
                 
654,045
               
Total liabilities
 
2,536,209
                 
2,949,117
               
Shareholders' equity 
 
249,313
                 
256,783
               
Total liabilities and shareholders' equity
$
2,785,522
               
$
3,205,900
               
                                         
Net interest income
     
$
17,191
               
$
22,102
         
Interest rate spread (5)
             
2.51
%
               
2.85
%
 
Net interest margin (6)
             
2.67
%
               
2.99
%
 
Ratio of average interest-earning assets to average interest-bearing liabilities
             
136
%
               
129
%
 
     
(1)  Average balances include non-accrual loans and loans held-for-sale.
   
(2)  Loan fees are included in interest income and the amount is not material for this analysis.
   
(3)  Interest earned on non-taxable investment securities is shown on a tax-equivalent basis assuming a 35% marginal federal tax rate for all periods. The fully taxable equivalent adjustments for the three months ended December 31, 2014 and 2013 were $165 thousand and $166 thousand, respectively.
   
(4)  Amounts include Advances from FHLBNY and Securities sold under agreements to repurchase - FHLBNY.
   
(5)  Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
   
(6)  Net interest margin represents net interest income as a percentage of average interest-earning assets.
   


 
 
 

 
SUN BANCORP, INC. AND SUBSIDIARIES
 
AVERAGE BALANCE SHEETS (Unaudited)
(Dollars in thousands)
         
 
 For the Year Ended December 31,
 
 
2014
   
2013