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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ☐ NO ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ☒ NO ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based on the closing price of the registrant’s Common Stock as of June 30, 2016 was approximately $215.7 million.

As of March 7, 2017, there were 18,966,481 outstanding shares of the registrant’s Common Stock.

This Form 10-K of Sun Bancorp, Inc. (the “Company”) and the documents incorporated by reference herein may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are intended to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. We are including this statement for the purpose of invoking those safe harbor provisions. Forward-looking statements often include the words “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook,” “view,” “opportunity,” “allow,” “continues,” “reflects,” “typically,” “usually” or similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would” and “could.” These forward-looking statements may include, among other things:

Actual future results may differ materially from our forward-looking statements, and we qualify all forward-looking statements by various risks and uncertainties we face, some of which are beyond our control, as well as the assumptions underlying the statements, including, among others, the following factors:

Some of these and other factors are discussed under Item 1A. Risk Factors and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and in the documents incorporated by reference herein. The development of any or all of these factors could have an adverse impact on our financial position and results of operations.

Any forward-looking statements are based upon management’s beliefs and assumptions at the time they are made. We undertake no obligation to publicly update or revise any forward-looking statements included or incorporated by reference herein or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise, unless otherwise required to do so by law or regulation. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements discussed herein or in the documents incorporated by reference herein might not occur, and you should not put undue reliance on any forward-looking statements.

The Company, a New Jersey corporation, is a bank holding company founded in 1985 and is headquartered in Mount Laurel, New Jersey. The Company’s principal subsidiary is the Bank. At December 31, 2016, the Company had total assets of $2.26 billion, total liabilities of $1.94 billion and total shareholders’ equity of $319.7 million. The Company’s principal business is to serve as a holding company for the Bank. As a registered bank holding company, the Company is subject to the supervision and regulation of the FRB. As a national bank, the Bank is subject to the supervision and regulation of the OCC. At December 31, 2016, the Company had 322 full-time and 32 part-time employees. As of December 31, 2016, the Company had 35 locations primarily throughout New Jersey, 30 of which were branch offices. The Company also had one loan production office in New York.

Through the Bank, the Company provides an array of community banking services to consumers, small businesses and mid-size companies. The Company’s lending services to businesses include term loans, lines of credit and commercial mortgages. The Company’s commercial deposit services include business checking and money market accounts and cash management solutions such as online banking, electronic bill payment and wire transfer services, lockbox services, remote deposit and controlled disbursement services. The Company’s lending services to consumers consist primarily of lines of credit of overdraft sweeps. The Company’s consumer deposit services include checking accounts, savings accounts, money market accounts, certificates of deposit and individual retirement accounts. In addition, the Company, through its subsidiary, Prosperis Financial Solutions, LLC., offers client access to mutual funds, securities brokerage, annuities and investment advisory services.

The Company’s website address is www.sunnationalbank.com. The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and other documents filed by the Company with the SEC are available free of charge on the Company’s website under the Investor Relations menu. Unless specifically incorporated by reference, the information on the Company’s website is not part of this Form 10-K. Such reports are also available on the SEC’s website at www.sec.gov, or at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. Information may be obtained on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

In the second quarter of 2014, the Company and the Bank announced a comprehensive restructuring plan. The restructuring plan included, among other things, the Bank exiting Sun Home Loans, its retail, consumer mortgage banking origination business and exiting its healthcare and asset-based lending businesses, the sale or consolidation of certain branch offices as well as significant classified asset and operating expense reductions. The restructuring plan included a reduction of approximately 37% in the Company’s workforce.

In connection with the restructuring plan, the Company announced a one-for-five reverse stock split with an effective date of August 11, 2014. The restructuring initiatives were designed to improve the Company’s historically weak performance in its credit, risk, operational and profitability metrics.

In August 2014, the Company raised approximately $20 million in equity through a privately negotiated sale of its common stock to several institutional investors. The Company issued a total of 1,133,144 shares of common stock in this transaction at a price per share of $17.65. There were no material issuance costs associated with this sale.

On March 6, 2015, the Company completed the sale of seven branch locations to Sturdy Savings Bank. In accordance with the sale, the Company sold $153.3 million of deposits, $63.8 million of loans, $4.0 million of fixed assets and $897 thousand of cash. The transaction resulted in a net cash payment of $71.5 million by the Company to Sturdy Savings Bank. After transaction costs, the net gain on the branch sale transaction recorded by the Company in the first quarter of 2015 was $9.2 million.

On August 28, 2015, the Company sold its Hammonton branch location to Cape Bank. In accordance with the sale, the Company sold $32.0 million of deposits, $4.8 million of loans, $354 thousand of fixed assets and $143 thousand of cash. The transaction resulted in a net cash payment of $25.5 million by the Company to Cape Bank. After transaction costs, the net gain on the branch sale transaction recorded by the Company in the third quarter of 2015 was $1.3 million.

In addition to the transactions noted above, the Company consolidated nine branch locations in 2015, which resulted in combined restructuring charges of $3.5 million. The Company’s comprehensive restructuring plan has now been fully implemented. As a result of the implementation and completion of the restructuring plan, the Company’s primary lending focus is centered around commercial relationships, specifically commercial real estate and commercial and industrial loan originations, as well as both originations and participations in multi-family loans. With the Bank’s branch network rationalized, the Company is focusing on enhancing its brand and building a relationship-based deposit gathering strategy which the Company anticipates will generate additional deposit-related income from service charges, cash management and related commercial banking products and services.

The Company’s corporate headquarters is in Mount Laurel, New Jersey, which is located in close proximity to both the New Jersey Turnpike and Interstate 295, two major thoroughfares that provide convenient access to the NYC-NJ-Philadelphia metropolitan region.

The Company’s operations have a primary market area in the State of New Jersey with a presence in the five boroughs of New York City and the Philadelphia, Pennsylvania market. The Company’s current deposit-gathering base and lending area is concentrated in the communities surrounding its offices in New Jersey. The Company is looking to expand further into central and northern New Jersey as well as the metropolitan New York City area as the high density in those markets presents more attractive business opportunities than southern New Jersey. The Company believes these markets are attractive and have strong growth potential based on key demographic and economic indicators. The State of New Jersey has among the highest median household incomes and personal incomes per capita in the nation. The Company’s markets are home to a diverse pool of businesses and industries, representing key opportunities for growth in business and commercial banking products and services. Related to the Company’s potential for consumer growth, New Jersey is one of the most densely populated states in the U.S., providing a deep consumer base as well. The Company’s market area is also home to many affluent suburbs, catering to commuters who live in New Jersey and work in New York or Philadelphia.

General. The principal lending activity of the Company is the origination of commercial real estate loans, commercial and industrial loans, multi-family residential loans and small business loans. Substantially all loans are originated in the Company’s primary market area. For more information about the Company’s lending activities, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Loans” in the Company’s 2016 Annual Report to Shareholders, included herein as Exhibit 13.

During 2015, the Company focused on reducing its elevated problem loan levels as well as exiting certain higher risk credits. This occurred through both loan sales to professional investors and strategic exits from certain relationships. Loan production was slow in 2015 due to this initiative, the competitive lending environment, the Company maintaining a very selective approach to originating new loan relationships and the establishment of a new lending team. Commercial loan production grew in 2016 as the Company shifted its focus to originating relationship based, high quality commercial loans. The Company has focused its efforts on further loan growth in 2017, especially in the central and northern parts of New Jersey as well as the metropolitan New York City area.

Many of the Company’s commercial business loans have a real estate component as part of the collateral securing the loan. If the operating company experiences difficulties in terms of sales volume and/or profitability, the borrower’s ability to repay the loan may be impaired. Loans secured by properties where repayment is dependent upon payment of rent by third party tenants or the sale of the property may be impacted by loss of tenants, lower lease rates needed to attract new tenants or the inability to sell a completed project in a timely fashion and at a profit. At December 31, 2016, commercial loans secured by commercial real estate properties totaled $636.6 million of which $231.1 million, or 36.3%, were classified as owner occupied and $405.5 million, or 63.7%, were classified as non-owner occupied. These loans are diversified across multiple industries.

Commercial Real Estate Loans. A significant component of our lending activity consists of loans for the acquisition, refinance, improvement and construction of real property. The Company has a commercial real estate portfolio comprised of loans on apartment buildings, professional offices, industrial facilities, retail centers and other commercial properties. The Company’s underwriting guidelines generally require its commercial real estate loans to have loan-to-value ratios of no more than 75% and minimum debt service coverage ratios, defined as net operating income divided by debt service, of 1.2. In addition, the Company seeks to obtain personal guarantees from its borrowers whenever possible. The maturity of these loans is typically two to five years. The specific loan-to-value ratio and debt service coverage ratio varies depending on the type of collateral for each commercial real estate loan. From time to time, the Company will consider purchasing participations in commercial real estate loans, including multi-family loans. Commercial real estate loans comprised approximately 61% of the Company’s total gross loan portfolio at December 31, 2016.

Commercial and Industrial Loans. In addition to real estate secured loan products, the Company also originates commercial and industrial loans, including working capital lines of credit, inventory and accounts receivable lines, equipment loans and other commercial loans. The Company focuses on making commercial and industrial loans to small and medium-sized businesses in a wide variety of industries. The Company’s underwriting guidelines generally require that commercial and industrial loans be secured by all business assets, and in the case of owner occupied real estate, that such loans have a loan-to-value ratio of no more than 80%. The Company seeks to obtain personal guarantees from its borrowers whenever possible. Commercial and industrial loans comprised approximately 14% of the Company’s total loan portfolio at December 31, 2016.

Construction Loans. The Company’s construction loans are secured by residential and commercial properties located in its market area. The Company’s construction loans to home builders generally have floating interest rates, are typically for a term of up to 36 months and have a maximum loan to value ratio of 75%. Loans to builders are made on either a pre-sold or speculative (unsold) basis. The Company generally allows the borrower to extend the term of the loan if the project is not yet complete or, in the case of a speculative construction loan, if the borrower has not yet sold the property. To extend the maturity of the loan, the loan generally must be current and the Company will assess if the project is being adequately managed and the borrower’s ability to continue to keep the loan current. Construction loans to individuals who intend to occupy the completed dwelling may be converted to permanent financing after the construction phase is completed. Construction loans are disbursed as certain portions of the project are completed. Construction loans comprised approximately 4% of the Company’s total loan portfolio at December 31, 2016.

Residential Real Estate Loans. The Company previously originated residential mortgages, including both conventional and jumbo loans, both for sale and for its portfolio. During 2014, the Bank shut down and exited its residential mortgage operations and ceased all origination and purchase activity for both its portfolio and for sale to the secondary market. The majority of these loans were for owner occupied single-family residences, a significant portion of which were originated with a forward commitment to sell the loan in the secondary market with servicing released. The Company’s mortgage loans were sold with recourse in the event of default, generally within the first six months and sometimes beyond that if certain documentation deficiencies are identified, depending on the terms with the investor. Residential real estate loans comprised approximately 13% of the Company’s total loan portfolio at December 31, 2016.

Home Equity Lines of Credit (“HELOC”). The Company previously originated home equity lines of credit, secured by first or second homes owned or being purchased by the loan applicant. HELOCs are consumer revolving lines of credit. The interest rates charged on such loans are fixed or floating and are generally related to the prime lending rate. HELOC loans, which are underwritten to reflect the borrower’s ability to pay the full principal and interest, may provide for interest only payments for the first three years with principal payments to begin in the fourth year. A home equity line was typically originated as a twenty-year note that allowed the borrower to draw upon the approved line of credit during the same period as the note. The Company generally permitted a loan-to-value ratio up to 80% of the appraised value, less any outstanding mortgage. HELOC loans expose the Company to the risk that falling collateral values may leave such loans inadequately secured especially in the current economic environment where residential real estate values have been negatively impacted. The Company ceased all HELOC origination activity in the second half of 2014. Home equity lines of credit comprised approximately 7% of the Company’s total loan portfolio at December 31, 2016.

Home Equity Term Loans. The Company previously originated home equity term loans secured by mortgage liens against the borrower’s primary, secondary or, to a lesser extent, investment property. Home equity term loans are consumer loans. The interest rate charged on such loans was usually a fixed rate which was determined based on the Company’s cost of funds and market conditions. These loans typically required fixed payments of principal and interest and have an average term between five and fifteen years. The Company generally permitted a loan-to-value ratio of up to 80% of the appraised value, less any outstanding mortgages. Home equity term loans expose the Company to the risk that falling collateral values may leave such credits inadequately secured. The Company ceased all home equity term loan origination activity in the second half of 2014. Home equity term loans comprised approximately 1% of the Company’s total loan portfolio at December 31, 2016.

Loan Solicitation and Processing. Loan originations are derived from a number of sources such as loan officers, existing customers and borrowers and referrals from real estate professionals, accountants, attorneys, regional advisory boards and regional or money center banks.

Upon the receipt of a loan request, the prospective borrower’s financial condition is analyzed, and appropriate agency reports are obtained to verify the applicant’s creditworthiness. For the majority of real estate that will secure a loan, the Company obtains an appraisal or evaluation from an independent appraiser approved by the Company and licensed or certified by the state. After all required information is received and evaluated, a loan approval decision is made. Depending on the loan type, collateral and amount of the credit request, various levels of approval are required. The Company has a Loan Approval Matrix (LAM) which facilitates the timely approval of commercial loans in an environment that promotes responsible use of coordinated lending authority. Depending on the loan size, either individual loan approval signatures are required or, for larger loan amounts, either approval of the Management Credit Committee (“MCC”) comprised of senior management or the approval of the MCC in addition to the Board Credit Committee of the Board of Directors is required for loans above an established threshold.

On an annual basis, the Chief Credit Officer presents for approval by the Board of Directors the recommended structure of the LAM and also recommends levels of lending authority within the matrix for individual loan and credit officers.

Loan Commitments. When a commercial loan is approved, the Company may issue a written commitment to the loan applicant. The loan commitment specifies the terms and conditions of the proposed loan including the amount, interest rate, amortization term, a brief description of the required collateral and the required insurance coverage. The loan commitment is valid for approximately 30 days. At December 31, 2016, the Company had $37.9 million of commercial loans that were approved but unfunded.

Credit Risk, Credit Administration and Loan Review. Credit risk represents the possibility that a customer or counterparty may not perform in accordance with contractual terms. The Company incurs credit risk whenever it extends credit to, or enters into other transactions with customers. The risks associated with extensions of credit include general risk, which is inherent in the lending business and risk specific to individual borrowers. The Credit Risk Division is responsible for the overall management of the Company’s credit risk and the development, application and enforcement of uniform credit policies and procedures, the principal purpose of which is to minimize such risk. Loan review and other loan monitoring practices provide a means for the Company’s management to ascertain whether proper credit, underwriting (new, extensions and renewals) and loan documentation policies, procedures and practices are being followed by the Company’s loan officers and are being applied uniformly. During 2015, the Company’s loan review function was outsourced to a third-party service provider. Loan reviews are conducted on a quarterly basis with a targeted annual coverage of 60% of the Company’s commercial loan portfolio.

The underpinning of the Company’s loan approval process is a numerical risk rating system. All commercial and small business loans are assigned a risk rating at the time of initial underwriting by the portfolio manager. The risk rating system is well-defined and requires quantification of various risk factors based on a 10 to 90 point scale. Risk rating is a dynamic process and ratings will change in tandem with financial and economic changes. The risk rating system is also the driver of management’s methodology for determining and monitoring the adequacy of the allowance for loan losses.

While management continues to review these and other related functional areas, there can be no assurance that the steps the Company has taken to date will be sufficient to enable it to identify, measure, monitor and control all credit risk.

The investment policy of the Company is established by senior management and approved by the Board of Directors. It is based on asset and liability management goals which are designed to provide a portfolio of high quality investments that optimize interest income within acceptable limits of safety and liquidity. The Company’s investments consist primarily of federal funds, securities issued or guaranteed by the United States Government or its agencies, mortgage-backed securities, states and political subdivisions, collateralized loan obligations and trust preferred securities. For more information about the Company’s investment securities portfolio, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Investment Securities” in the 2016 Annual Report to Shareholders, included herein as Exhibit 13.

General. Deposits are the primary source of the Company’s funds for lending and other investment purposes. In addition to deposits, the Company derives funds from the repayment, maturities and sales of loans, maturities or calls of investment securities, as well as a variety of wholesale funding sources. Scheduled loan principal repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general interest rates and market conditions.

Deposits. Consumer and commercial deposits, as well as deposits from governmental entities are attracted principally from within the Company’s primary market area through the offering of a broad selection of deposit instruments including checking accounts, savings accounts, money market accounts, time deposit certificate accounts and individual retirement accounts. Deposit

account terms vary according to the minimum balance required, the time periods the funds must remain on deposit and the interest rate, among other factors. The Company regularly evaluates the internal cost of funds, surveys rates offered by competing institutions, reviews the Company’s cash flow requirements for lending and liquidity and executes a rate strategy it deems appropriate. The Company participates in the Certificate of Deposit Account Registry Service (CDARS^®) program, which enables our local customers to obtain expanded FDIC insurance coverage on their deposits. The Company may also obtain funding through the CDARS^®program and other brokered deposits. For more information about the Company’s deposits, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Deposits” in the 2016 Annual Report to Shareholders, included herein as Exhibit 13.

Borrowings. The Company may obtain advances from the Federal Home Loan Bank of New York (“FHLBNY”) to supplement its funding requirements. Such advances must be secured by a pledge of a portion of the Company’s assets which may include securities, first mortgage loans and other collateral acceptable to the FHLBNY. The Company, if the need arises, may also access the FRB discount window to supplement its supply of lendable funds and to meet deposit withdrawal requirements. At December 31, 2016, the Company had additional secured borrowing capacity with the FRB of approximately $88.7 million, of which none was utilized, and the FHLBNY of approximately $128.6 million, of which $85.4 million was utilized. As of December 31, 2016, the Company had $217.2 million in loans and $64.5 million in securities pledged as collateral on secured borrowings. The Company had additional unsecured borrowing capacity through lines of credit with other financial institutions of approximately $25.0 million at December 31, 2016.

The Company, from time to time, may utilize overnight repurchase agreements with customers. The Company would obtain funds through overnight repurchase agreements with customers pursuant to which the Company sells U.S. Treasury notes or securities issued or guaranteed by one of the government sponsored enterprises to customers under an agreement to repurchase them, at par, on the next business day. At December 31, 2016, there were no outstanding securities under agreements to repurchase with customers. In addition, the Company may obtain funds through term repurchase agreements with the FHLBNY or large investment banks. At December 31, 2016, the Company had no outstanding repurchase agreements with the FHLBNY or any investment bank.

For more information about the Company’s borrowings, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Borrowings” in the 2016 Annual Report to Shareholders, included herein as Exhibit 13.

The Company offers an array of community banking products and services designed to enhance the overall relationship with its customers.

Cash Management Services. The Company offers comprehensive cash management services designed to meet the more sophisticated needs of its commercial and small business customers. The Cash Management department offers additional products and services such as online banking and bill payment services, electronic payment and wire transfer services, lockbox services, merchant services, remote deposit and controlled disbursement services. Some of these services are provided through third-party vendors with links to the Company’s core processor.

Prosperis Financial Solutions, LLC. Through a contract with a third party, Prosperis Financial Solutions, LLC, the Company’s investment services division offers experienced professionals that deliver a full range of products and services to meet the specific needs of the Company’s customers. The products offered include insurance, annuities, mutual funds, securities and other investment services.

Customer Derivatives. In the past, to accommodate customer needs, the Company entered into financial derivative transactions primarily consisting of interest rate swaps. Market risk exposure from customer positions is managed through transactions with third-party dealers. The credit risk associated with derivatives executed with customers is essentially the same as that involved in extending loans and is subject to normal credit policies. Collateral may be obtained based on management’s assessment of the customer. The positions of customer derivatives are recorded at fair value and changes in value are included in non-interest income on the consolidated statement of operations. The Company no longer offers this product.

The Company faces substantial competition in all aspects of its business. The banking business in the State of New Jersey is highly competitive and comprised of both small and large financial institutions. The State of New Jersey has a high density of financial institutions, many of which are branches of significantly larger institutions which have greater financial resources than the Company, all of which are competitors of the Company to varying degrees. In order to compete with the many financial institutions

serving its primary market area, the Company’s strategy is to focus on providing a superior level of individualized attention and personalized service to local businesses and individual customers.

The competition for deposits comes from other insured financial institutions such as commercial banks, thrift institutions, credit unions, and multi-state regional and money center banks in the Company’s market area. Competition for funds also includes a number of insurance products sold by local agents and investment products such as mutual funds and other securities sold by local and regional brokers.

Bank holding companies and banks are extensively regulated under both federal and state law. Any change in laws and regulations (including laws concerning taxes, banking, securities, accounting and insurance), whether by the FRB, OCC, FDIC, Consumer Financial Protection Bureau or another government agency, or through legislation, could have a material adverse impact on the Company and the Bank and their operations. The description of statutory provisions and regulations applicable to banking institutions and their holding companies set forth in this Form 10-K does not purport to be a complete description of such statutes and regulations and their effects on the Bank and the Company. The discussion is qualified in its entirety by reference to all particular statutory or regulatory provisions.

The Company is a legal entity separate and distinct from the Bank. Accordingly, the right of the Company, and consequently the right of creditors and shareholders of the Company, to participate in any distribution of the assets or earnings of the Bank is necessarily subject to the prior claims of creditors of the Bank, except to the extent that claims of the Company in its capacity as creditor may be recognized.

Prior to 2016, the Bank was subject to the OCC Agreement, which imposed an individual capital requirement on the Bank and restricted the Bank’s ability to pay dividends, and imposed a variety of other operating restrictions and requirements. In addition, the Company had been required to seek prior approval from the Federal Reserve Bank before paying interest, principal or other sums on trust preferred securities or any related subordinated debentures, declaring or paying cash dividend or receiving dividends from the Bank, repurchasing outstanding stock or incurring indebtedness, among other individual restrictions and requirements. The OCC terminated the OCC Agreement and the individual restrictions and requirements thereunder in January 2016, Similarly, in October 2016, the Federal Reserve Bank terminated the individual restrictions and requirements placed on the Company.

Separately, on January 21, 2016, without admitting or denying any wrongdoing, the Bank entered into a Consent Order with the OCC to pay a $25,000 civil money penalty in connection with various deficiencies identified by the OCC in the mortgage banking practices of Sun Home Loans, a former division of the Bank, which was closed in July 2014 when the Bank exited the residential mortgage lending business as part of a comprehensive restructuring plan. The identified deficiencies occurred from July 2011 through September 2013.

General. As a registered bank holding company, the Company is regulated under the Bank Holding Company Act of 1956 and is subject to supervision, examination and regulation by the FRB.

Bank Holding Company Regulation. In general, the Bank Holding Company Act limits bank holding company business to owning or controlling banks and engaging in other banking-related activities. Bank holding companies must obtain the FRB’s approval before acquiring direct or indirect ownership or control of any voting shares of any bank that results in total ownership or control, directly or indirectly, of more than 5% of the voting shares of such bank; merging or consolidating with another bank holding company; or acquiring substantially all of the assets of any additional banks.

Financial Modernization. The Gramm-Leach-Bliley Act (“Gramm-Leach”) permits qualifying bank holding companies to become financial holding companies and thereby engage (directly or through a subsidiary) in a broad range of activities deemed financial in nature. Gramm-Leach defines “financial in nature” to include securities underwriting, dealing and market making; sponsoring mutual funds and investment companies; insurance underwriting and agency; merchant banking activities; and activities that the FRB has determined to be closely related to banking. A qualifying bank holding company also may engage, subject to

limitations on investment, in activities that are financial in nature, other than insurance underwriting, insurance company portfolio investment, real estate development, and real estate investment, through a financial subsidiary of a bank subsidiary.

Regulatory Capital Requirements. The FRB has adopted capital adequacy guidelines under which it assesses the adequacy of capital in examining and supervising bank holding companies, such as the Company, and in processing applications to it under the Bank Holding Company Act. The FRB’s capital adequacy guidelines are similar to those imposed on the Bank by the OCC. At December 31, 2016, the Company was in compliance with all applicable regulatory capital requirements. See Note 20 of the Notes to Consolidated Financial Statements included in the Company’s 2016 Annual Report to Shareholders, included herein as Exhibit 13. In addition, see “Capital Adequacy” below for further discussion of certain new capital requirements that apply to the Company and that went into effect on January 1, 2015.

Source of Strength. Under the Dodd-Frank Act and FRB requirements, the Company, as a bank holding company, is required to serve as a source of financial strength to the Bank and to commit resources to support the Bank. In addition, consistent with its “source of strength” policy, the FRB has stated that, as a matter of prudent banking, a bank holding company should not maintain a level of cash dividends to its shareholders that places undue pressure on the capital of its bank subsidiaries, or that can be funded only through additional borrowings or other arrangements that may undermine the bank holding company’s ability to serve as a source of strength.

In addition, under the National Bank Act, if the capital stock of the Bank is impaired by losses or otherwise, the OCC is authorized to require payment of the deficiency by assessment upon the Company. If the assessment is not paid within three months, the OCC could order a sale of the Bank stock held by the Company to make good the deficiency.

Federal Securities Law. The Company’s securities are registered with the SEC under the Exchange Act. As such, the Company is subject to the information, proxy solicitation, insider trading, and other requirements and restrictions of the Exchange Act.

New Jersey Corporation Law. The Company is incorporated under the laws of the State of New Jersey, and is therefore subject to regulation by the State of New Jersey. In addition, the rights of the Company’s shareholders are governed by the New Jersey Business Corporation Act.

General. The Bank is organized as a national bank under the National Bank Act and is subject to supervision, examination and regulation by the OCC. In addition, the Bank’s deposit accounts are insured by the FDIC and the Bank is subject to certain regulations of the FDIC. The Bank is also subject to various requirements and restrictions under federal and state law, including requirements to maintain reserves against deposits, restrictions on the types, amount and terms and conditions of loans that may be granted and limitations on the types of investments that may be made and the types of services that may be offered. Various consumer laws and regulations also affect the operations of the Bank.

Dividend Restrictions. The Bank is subject to various statutory and regulatory restrictions on its ability to pay dividends to the Company. All national banks are limited in the payment of dividends without the approval of the OCC of a total amount not to exceed the net income for that year to date plus the retained net income for the preceding two years. Federal law also prohibits national banks from paying dividends that would be greater than the bank’s undivided profits after deducting statutory bad debt in excess of the bank’s allowance for loan losses. Due to the Bank’s history of losses and retained deficit as of December 31, 2016, the Bank may not pay dividends; however, federal law permits the Bank to distribute cash or other assets to the Company through a reduction of capital, subject to approval by the OCC. At such time as the retained deficit is eliminated, any proposed dividends from the Bank to the Company would be subject to regulatory approval until such time as net income for the current year combined with the prior two years is sufficient. Under the Federal Deposit Insurance Corporation Improvement Act (“FDICIA”), an insured depository institution such as the Bank is prohibited from making capital distributions, including the payment of dividends, if, after making such distribution, the institution would become “undercapitalized” (as such term is used in the FDICIA). Payment of dividends by the Bank also may be restricted at any time at the discretion of the OCC if it deems the payment to constitute an unsafe and unsound banking practice. During 2015, the Bank was subject to the OCC Agreement, which prohibited the Bank from paying any dividends if it was not in compliance with its approved capital plan or if the effect of the dividend would be to cause the Bank to not be in compliance and, in either event, not without prior OCC approval. The Bank did not seek OCC approval to pay a dividend or other distribution as a reduction of capital in 2016.

Liquidity. The Bank maintains sufficient liquidity to ensure its safe and sound operation, in accordance with OCC regulations.

Assessments. The OCC charges assessments to recover the cost of examining national banks and their affiliates. The Bank paid a total of $562 thousand in OCC assessments for the year ended December 31, 2016.

Branching. National banks may branch nationwide to the extent allowed by federal statute.

Legal Lending Limits. The National Bank Act imposes restrictions on the amount of loans that a national bank can lend to one borrower. Based upon these legal lending limits, the Bank’s total outstanding loans and extensions of credit to one borrower may not exceed 15% of the Bank’s capital and surplus, plus an additional 10% for loans fully secured by readily marketable collateral, as such term is defined in the applicable regulation. At December 31, 2016, the Bank’s legal lending limit and internal lending limit to one borrower were $81.0 million and $43.0 million, respectively. Exceptions to the Bank’s internal lending limit may be permitted on a case by case basis with the approval of the Board of Directors. The Bank is in compliance with applicable loan to one borrower limitations. At December 31, 2016, the Bank’s largest aggregate amount of loans to one borrower totaled $37.7 million. The borrower has no affiliation with the Bank.

Affiliate Transaction Restrictions. The Bank is subject to federal laws that limit the transactions by a subsidiary bank to or on behalf of its parent company and to or on behalf of any nonbank subsidiaries. Such transactions by a subsidiary bank to its parent company or to any nonbank subsidiary are limited to 10% of a bank subsidiary’s capital and surplus and, with respect to such parent company and all such nonbank subsidiaries, to an aggregate of 20% of such bank subsidiary’s capital and surplus. Further, loans and extensions of credit generally are required to be secured by eligible collateral in specified amounts. Federal law also prohibits banks from purchasing “low-quality” assets from affiliates.

Section 402 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) prohibits the extension of personal loans to directors and executive officers of “issuers” (as defined in Sarbanes-Oxley). The prohibition, however, does not apply to mortgages advanced by an insured depository institution, such as the Bank, that are subject to the insider lending restrictions of Section 22(h) of the Federal Reserve Act (“FRA”).

Section 22(h) of the FRA restricts loans to directors, executive officers, and principal stockholders (“insiders”). Under Section 22(h) of the FRA, loans to insiders and their related interests may not exceed, together with all other outstanding loans to such persons and affiliated entities, the Bank’s total capital and surplus. Further, under Section 22(h) of the FRA, loans to directors, executive officers, and principal stockholders must be made on terms substantially the same as offered in comparable transactions to other persons, except that such insiders may receive preferential loans made under a benefit or compensation program that is widely available to the Bank’s employees and does not give preference to the insider over the employees. Section 22(g) of the FRA places additional limitations on loans to executive officers. A loan from the Bank to an affiliate of one of the Company’s directors, Peter L. Galetto, had an outstanding balance of $424 thousand at December 31, 2016. Effective during 2015, the Bank is no longer issuing new loans to insiders.

The Dodd-Frank Act imposes further restrictions on transactions with affiliates and extensions of credit to executive officers, director and principal shareholders, by, among other things, expanding covered transactions to include securities lending, repurchase agreement and derivatives activities with affiliates. These changes became effective on July 21, 2012.

Interagency Guidance on Commercial Real Estate Lending. In December 2006, the federal bank regulatory agencies published guidance entitled “Interagency Guidance on Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices” (the “CRE Guidance”), to address concentrations of commercial real estate loans. The CRE Guidance reinforces and enhances the OCC’s existing regulations and guidelines for real estate lending and loan portfolio management, but does not establish specific commercial real estate lending limits.

In October 2009, the federal bank regulatory agencies adopted a policy statement supporting prudent commercial real estate mortgage loan workouts (the “2009 Policy Statement”). The 2009 Policy Statement provides guidance for examiners, and for financial institutions that are working with commercial real estate mortgage loan borrowers who are experiencing diminished operating cash flows, depreciated collateral values, or prolonged delays in selling or renting commercial properties. The 2009 Policy Statement details risk-management practices for loan workouts that support prudent and pragmatic credit and business decision-making within the framework of financial accuracy, transparency, and timely loss recognition. Financial institutions that implement prudent loan workout arrangements after performing comprehensive reviews of borrowers’ financial conditions will not be subject to criticism for engaging in these efforts, even if the restructured loans have weaknesses that result in adverse credit classifications. In addition, performing loans, including those renewed or restructured on reasonable modified terms, made to creditworthy borrowers, will not be subject to adverse classification solely because the value of the underlying collateral declined. The 2009 Policy Statement reiterates existing guidance that examiners are expected to take a balanced approach in assessing institutions’ risk-management practices for loan workout activities.

In December 2015, the federal bank regulatory agencies released a statement entitled “Statement on Prudent Risk Management for Commercial Real Estate Lending” (the “2015 CRE Statement”). In the 2015 CRE Statement, the federal bank regulatory agencies express concerns about easing commercial real estate underwriting standards, direct financial institutions to maintain underwriting

discipline and exercise risk management practices to identify, measure and monitor lending risks and indicate that they will continue to pay special attention to commercial real estate lending activities and concentration going forward.

The Company has evaluated the CRE Guidance, the 2009 Policy Statement and the 2015 CRE Statement to determine its compliance and, as necessary, modified its risk management practices, underwriting guidelines and consumer protection standards. See “Lending Activities” for a discussion of the Company’s loan product offerings and related underwriting standards and “Item 7 - Management’s Discussion and Analysis - Financial Condition - Loans” in the Company’s 2016 Annual Report to Shareholders included here as Exhibit 13 for information regarding the Company’s loan portfolio composition.

Privacy Standards and Cybersecurity. The Bank is subject to OCC regulations implementing the privacy protection provisions of Gramm-Leach. These regulations require the Bank to disclose its privacy policy, including identifying with whom it shares “non-public personal information,” to customers at the time of establishing the customer relationship and annually thereafter.

The regulations also require the Bank to provide its customers with initial and annual notices that accurately reflect its privacy policies and practices. In addition, the Bank is required to provide its customers with the ability to “opt-out” of having the Bank share their non-public personal information with unaffiliated third parties before they can disclose such information, subject to certain exceptions.

The Bank is subject to regulatory guidelines establishing standards for safeguarding customer information. These regulations implement certain provisions of Gramm-Leach. The guidelines describe the federal bank regulatory agencies’ expectations for the creation, implementation and maintenance of an information security program, which is required to include administrative, technical and physical safeguards appropriate to the size and complexity of the institution and the nature and scope of its activities. The standards set forth in the guidelines are intended to ensure the security and confidentiality of customer records and information, protect against any anticipated threats or hazards to the security or integrity of such records and protect against unauthorized access to or use of such records or information that could result in substantial harm or inconvenience to any customer.

Federal bank regulatory agencies, including the OCC, have adopted guidelines for establishing information security standards and cybersecurity programs for implementing safeguards under the supervision of the board of directors. These guidelines, along with related regulatory materials, increasingly focus on risk management and processes related to information technology and the use of third parties in the provision of financial services. In October 2016, the federal bank regulatory agencies issued an advance notice of proposed rulemaking on enhanced cybersecurity risk-management and resilience standards that would apply to large and interconnected banking organizations and to services provided by third parties to these firms. These enhanced standards would apply only to depository institutions and depository institution holding companies with total consolidated assets of $50 billion or more.

Community Reinvestment Act. Under the Community Reinvestment Act (“CRA”), as implemented by OCC regulations, national banks, including the Bank, have a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community. The CRA requires the OCC, in connection with its examination of the Bank, to assess the Bank’s record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such institution.

Current CRA regulations rate an institution based on its actual performance in meeting community needs. In particular, the evaluation system focuses on three tests:

The CRA also requires all institutions to make public disclosure of their CRA ratings. The Bank has received a “satisfactory” rating in its most recent CRA examination. The federal bank regulatory agencies adopted regulations implementing the requirement under Gramm-Leach that insured depository institutions publicly disclose certain agreements that are in fulfillment of the CRA. The Bank has no such agreements in place at this time.

Insurance Activities. The Bank is generally permitted to engage in certain activities through its subsidiaries. However, the federal bank regulatory agencies have adopted regulations prohibiting depository institutions from conditioning the extension of credit to individuals upon either the purchase of an insurance product or annuity or an agreement by the consumer not to purchase an

insurance product or annuity from an entity that is not affiliated with the depository institution. The regulations also require prior disclosure of this prohibition to potential insurance product or annuity customers. The Bank currently offers insurance products through an agreement with an independent third party.

Insurance of Deposit Accounts. The Bank’s deposits are insured up to applicable limits of the FDIC and are subject to deposit insurance assessments by the FDIC pursuant to its regulations establishing a risk-related deposit insurance assessment system, based on the institution’s capital levels and risk profile.

Under the Federal Deposit Insurance Act, as amended (“FDIA”), the FDIC may terminate the insurance of an institution’s deposits upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. Management does not know of any practice, condition or violation that might lead to termination of deposit insurance.

In determining the deposit insurance assessment to be paid by insured depository institutions, the FDIC generally assigns an institution to one of four risk categories based on the institution’s most recent supervisory ratings and capital ratios. For institutions within Risk Category I, assessment rates generally depend upon a combination of long-term debt issuer ratings, CAMELS (capital adequacy, asset quality, management, earnings, liquidity, and sensitivity to market risk) component ratings and financial ratios. In addition, an institution’s base assessment rate is generally subject to the following adjustments: (i) a decrease for the institution’s long-term unsecured debt, including most senior and subordinated debt, (ii) an increase for brokered deposits above a threshold amount and (iii) an increase for unsecured debt held that is issued by another insured depository institution.

The FDIC annually establishes for the Deposit Insurance Fund (“DIF”) a designated reserve ratio (“DRR”) of estimated insured deposits. The FDIC has announced that the DRR will remain at 2.00% for 2017, which is the same ratio that has been in effect since January 1, 2011. The FDIC is authorized to change deposit insurance assessment rates as necessary, to maintain the DRR, without further notice-and-comment rulemaking, provided that: (i) no such adjustment can be greater than three basis points from one quarter to the next, (ii) adjustments cannot result in rates more than three basis points above or below the base rates and (iii) rates cannot be negative.

As a result of the failures of a number of banks and thrifts during the financial crisis, there was a significant increase in the loss provisions of the DIF. This resulted in a decline in the DIF reserve ratio during 2008 below the then minimum DRR of 1.15%. As a result, the FDIC was required to establish a restoration plan to restore the reserve ratio to 1.15% within a period of eight years.

The Dodd-Frank Act subsequently increased the minimum DRR for the DIF from 1.15% to 1.35% of insured deposits, which must be reached by September 30, 2020, and provides that in setting the assessment rates necessary to meet the new requirement, the FDIC shall offset the effect of this provision on insured depository institutions with total consolidated assets of less than $10 billion, such as the Bank, so that more of the cost of raising the reserve ratio will be borne by the institutions with more than $10 billion in assets. In October 2010, the FDIC adopted a restoration plan to ensure that the DIF reserve ratio reaches 1.35% by September 30, 2020, as required by the Dodd-Frank Act. On October 22, 2015, the FDIC issued a proposal to increase the reserve ratio for the DIF to the minimum level of 1.35% as required by the Dodd-Frank Act. The final rule was adopted on March 15, 2016 and imposed a quarterly surcharge on insured depository institutions with $10 billion or more in total consolidated assets. These surcharges commenced in 2016 and are expected to continue for approximately eight quarters; however, if the reserve ratio for the DIF does not reach the required level by December 31, 2018, the FDIC would impose a shortfall assessment on March 31, 2019, which would be collected on June 30, 2019. The Bank is not subject to the forgoing surcharges.

The Bank paid deposit insurance assessments of $1.0 million during the year ended December 31, 2016. The deposit insurance assessment rates are in addition to assessments that may be imposed by the Financing Corporation (“FICO”), a separate U.S. government agency affiliated with the FDIC, on insured deposits to pay for the interest cost of FICO bonds. FICO assessment rates for 2016 were $.0056 for each $100 of deposits. The Bank paid $108 thousand in FICO assessments in 2016.

Capital Adequacy. Pursuant to the Dodd-Frank Act, the federal bank regulatory agencies issued rules that subject many national banks and bank holding companies, including the Bank and the Company, to consolidated capital requirements, effective January 1, 2015 (the “Final Capital Rules”). The Final Capital Rules also revised the quantity and quality of required minimum risk-based and leverage capital requirements applicable to the Bank and the Company, consistent with the Dodd-Frank Act and the Basel III capital standards. The Final Capital Rules revised the quantity and quality of capital required by (1) establishing a new minimum common equity Tier 1 capital ratio of 4.5% of risk-weighted assets; (2) increasing the minimum Tier 1 capital ratio from 4.0% to 6.0% of risk-weighted assets; (3) maintaining the minimum total capital ratio of 8.0% of risk-weighted assets; and (4) maintaining a minimum Tier 1 leverage capital ratio of 4.0%.

The Final Capital Rules further require that certain items be deducted from common equity Tier 1 capital, including (1) goodwill and other intangible assets, other than mortgage servicing rights, net of deferred tax liabilities (“DTLs”); (2) deferred tax assets that

arise from operating losses and tax credit carryforwards, net of valuation allowances and DTLs; (3) after-tax gain-on-sale associated with a securitization exposure; and (4) defined benefit pension fund assets held by a depository institution holding company, net of DTLs. In addition, banking organizations must deduct from common equity Tier 1 capital the amount of certain assets, including mortgage servicing assets, that exceed certain thresholds. The Final Capital Rules also allow all but the largest banking organizations to make a one-time election not to recognize unrealized gains and losses on available-for-sale debt securities in regulatory capital, as under prior capital rules.

Furthermore, the Final Capital Rules added a requirement for a minimum common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets (the “Conservation Buffer”), to be applied to the common equity Tier 1 capital ratio, the Tier 1 capital ratio and the total capital ratio. The required minimum Conservation Buffer is being phased in incrementally between 2016 and 2019. If a bank’s or bank holding company’s Conservation Buffer is less than the required minimum and its net income for the four calendar quarters preceding the applicable calendar quarter, net of any capital distributions and associated tax effects not already reflected in net income (“Eligible Retained Income”), is negative, it would be prohibited from making capital distributions or certain discretionary cash bonus payments to executive officers. As a result, under the Final Capital Rules, should the Company fail to maintain the Conservation Buffer, it would be subject to limits on, and in the event it has negative Eligible Retained Income for any four consecutive calendar quarters, the Company would be prohibited in, its ability to obtain capital distributions from the Bank.

The chart below sets forth the new regulatory capital levels, including the Conservation Buffer, during the applicable transition period:

	Regulatory Capital Levels
	January 1, 2016			January 1, 2017			January 1, 2018			January 1, 2019
Tier 1 common equity		5.125	%		5.75	%		6.375	%		7.0	%
Tier 1 risk-based capital ratio		6.625	%		7.25	%		7.875	%		8.5	%
Total risk-based capital ratio		8.625	%		9.25	%		9.875	%		10.5	%

Moreover, the Final Capital Rules revised existing and establish new risk weights for certain exposures, including, among other exposures, commercial loans, which generally include commercial real estate loans, past due loans and government sponsored enterprise exposures. Under the Final Capital Rules, pre-sold construction loans have a risk weight of 50%, unless the purchase contract is cancelled, in which case the risk weight is 100%. High-volatility commercial real estate exposures have a risk weight of 150%, preferred stock issued by a government sponsored enterprise has a risk weight of 100% and exposures to government sponsored enterprises that are not equity exposures have a risk weight of 20%.

The new minimum regulatory capital ratios and changes to the calculation of risk-weighted assets (each as described above) under the Final Capital Rules became effective for the Bank and the Company on January 1, 2015. The required minimum Conservation Buffer began to be phased in incrementally, starting at 0.625% on January 1, 2016, increased to 1.25% on January 1, 2017, and will increase to 1.875% on January 1, 2018 and 2.5% on January 1, 2019.

The OCC may, in addition, establish higher capital requirements than those set forth in its capital regulations when particular circumstances warrant. The OCC had previously imposed an individual capital requirement for the Bank that was terminated effective January 21, 2016. Under the federal banking laws, failure to meet the minimum regulatory capital requirements could subject a bank to a variety of enforcement remedies available to federal bank regulatory agencies.

At December 31, 2016, the Bank’s capital ratios exceeded all of the OCC’s regulatory capital requirements, including the Conservation Buffer. See Note 20 of the Notes to Consolidated Financial Statements included in the Company’s 2016 Annual Report to Shareholders, included herein as Exhibit 13.

Prompt Corrective Action. FDICIA established a system of prompt corrective action to resolve the problems of undercapitalized institutions. Federal bank regulatory agencies possess broad powers to make corrective and other supervisory action as deemed appropriate for an insured depository institution and its holding company. The extent of these powers depends on whether the institution in question is considered “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” The classification of depository institutions is primarily for the purpose of applying the federal bank regulatory agencies’ prompt corrective action and other supervisory powers and is not intended to be, and should not be interpreted as, a representation of the overall financial condition or prospects of any financial institution. Under the OCC’s prompt corrective action regulations, the OCC is required to take certain supervisory actions against undercapitalized institutions, the severity of which depends upon the institution’s degree of undercapitalization. The OCC’s prompt corrective action powers can include, among other things, requiring an insured depository institution to adopt a capital restoration plan which cannot be approved unless guaranteed by the institution’s parent company; placing limits on asset growth and restrictions on activities; including restrictions on transactions with

affiliates; restricting the interest rate the institution may pay on deposits; prohibiting the payment of principal or interest on subordinated debt; prohibiting the institution from making capital distributions without prior regulatory approval; and, ultimately, appointing a receiver for the institution. Numerous mandatory supervisory actions become immediately applicable to an undercapitalized institution, including, but not limited to, increased monitoring by regulators and restrictions on growth, capital distributions and expansion. The OCC could also take any one of a number of discretionary supervisory actions, including the issuance of a capital directive and the replacement of senior executive officers and directors. In addition, only a “well capitalized” depository institution may accept brokered deposits without prior regulatory approval and an “adequately capitalized” depository institution may accept brokered deposits with prior regulatory approval.

To be deemed “well capitalized”, a national bank must maintain a Total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a common equity Tier 1 risk-based capital ratio of 6.5% or greater and a Tier 1 leverage capital ratio of 5.0% or greater and not subject to any order or directive by the OCC to meet a specific capital level. As of December 31, 2016, the Bank was within the required ratios for classification as “well capitalized.”

In addition to measures taken under the prompt corrective action provisions with respect to undercapitalized institutions, insured depository institutions and their holding companies may be subject to potential enforcement actions by their regulators for unsafe and unsound practices in conducting their business or for violations of law or regulation, including the filing of a false or misleading regulatory report. Enforcement actions under this authority may include the issuance of cease and desist orders, the imposition of civil money penalties, the issuance of directives to increase capital, formal and informal agreements, or removal and prohibition orders against “institution-affiliated parties” (generally bank insiders). Further, the FRB may bring an enforcement action against a depository institution holding company either to address undercapitalization in the holding company or to require the holding company to take measures to remediate undercapitalization or other safety and soundness concerns in a depository institution subsidiary.

The Volcker Rule. On December 10, 2013, the FRB, the OCC, the FDIC, the Commodity Futures Trading Commission (“CFTC”) and the SEC issued final rules to implement the Volcker Rule contained in Section 619 of the Dodd-Frank Act. While the Dodd-Frank Act provided that banks and bank holding companies were required to conform their activities and investments to the requirements of the Volcker Rule by July 21, 2014, in connection with issuing the final Volcker Rule, the FRB extended the conformance period until July 21, 2015. The FRB is permitted, by rule or order, to extend the conformance period for one year at a time, for a total of not more than 3 years. The FRB further exercised its authority to extend the conformance period on two occasions, including issuing an order on July 7, 2016 and granting a final one-year extension in order to permit banks and bank holding companies until July 21, 2017 to conform to the requirements of the Volcker Rule. In addition, in December 2016, the FRB provided guidance allowing for additional extensions to the conformance period for certain illiquid funds.

The Volcker Rule prohibits an insured depository institution and its affiliates (referred to as “banking entities”) from: (i) engaging in “proprietary trading” and (ii) investing in or sponsoring certain types of funds (“covered funds”) subject to certain limited exceptions. These prohibitions impact the ability of U.S. banking entities to provide investment management products and services that are competitive with nonbanking firms generally and with non-U.S. banking organizations in overseas markets. The rule also effectively prohibits short-term trading strategies by any U.S. banking entity if those strategies involve instruments other than those specifically permitted for trading. The final Volcker Rule regulations do provide certain exemptions allowing banking entities to continue underwriting, market-making and hedging activities and trading certain government obligations, as well as various exemptions and exclusions from the definition of “covered funds.” The level of required compliance activity depends on the size of the banking entity and the extent of its trading.

On January 14, 2014, the five federal agencies, including the FRB and OCC, approved an interim final rule to permit banking entities to retain interests in certain collateralized debt obligations backed primarily by trust preferred securities from the investment prohibitions of the Volcker Rule. Under the interim final rule, the agencies permit the retention of an interest in or sponsorship of covered funds by banking entities if certain qualifications are met. In addition, the agencies released a non-exclusive list of issuers that meet the requirements of the interim final rule. At December 31, 2016, the Company had an investment in one pool of trust preferred securities with an amortized cost of $8.8 million and estimated fair value of $6.7 million. This pool was included in the list of non-exclusive issuers that meet the requirements of the interim final rule released by the agencies and therefore was not required to be sold by the Company.

At December 31, 2016, the Company was in full compliance with the requirements of the Volcker Rule.

Anti-Money Laundering and Customer Identification. The Bank is subject to the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“USA PATRIOT Act”), and its implementing regulations. The USA PATRIOT Act gives the federal government powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing, and broadened anti-money laundering requirements.

By way of amendments to the Bank Secrecy Act, Title III of the USA PATRIOT Act takes measures intended to encourage information sharing among bank regulatory agencies and law enforcement bodies. Further, certain provisions of Title III impose affirmative obligations on a broad range of financial institutions, including banks, thrifts, brokers, dealers, credit unions, money transfer agents and parties registered under the Commodity Exchange Act.

Title III of the USA PATRIOT Act and the implementing regulations impose the following requirements on financial institutions:

In addition, in May 2016, the regulations implementing the Bank Secrecy Act were amended to explicitly include risk-based procedures for conducting ongoing customer due diligence, to include understanding the nature and purpose of customer relationships for the purpose of developing a customer risk profile. In addition, the banks must identify and verify the identity of the beneficial owners of all legal entity customers (other than those that are excluded) at the time a new account is opened (other than accounts that are exempted). The Bank must comply with these amendments and new requirements by May 11, 2018.

Safety and Soundness Standards. Pursuant to the requirements of the FDICIA, as amended by the Riegle Community Development and Regulatory Improvement Act of 1994, federal bank regulatory agencies adopted guidelines establishing general standards relating to internal controls, information and internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, asset quality, earnings and compensation, fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director, or principal shareholder.

In addition, the OCC adopted regulations pursuant to FDICIA that require a bank that is given notice by the OCC that it is not satisfying any of the safety and soundness standards to submit a compliance plan to the OCC. If, after being so notified, a bank fails to submit an acceptable compliance plan or fails in any material respect to implement an accepted compliance plan, the OCC may issue an order directing corrective and other actions of the types to which a significantly undercapitalized institution is subject under the “prompt corrective action” provisions of FDICIA. If a bank fails to comply with such an order, the OCC may seek to enforce such an order in judicial proceedings and to impose civil monetary penalties.

In July 2010, the federal bank regulatory agencies issued Guidance on Sound Incentive Compensation Policies that applies to all banking organizations supervised by the agencies. Pursuant to the guidance, to be consistent with safety and soundness principles, a banking organization’s incentive compensation arrangements should: (1) provide employees with incentives that appropriately balance risk and reward: (2) be compatible with effective controls and risk management; (3) be supported by strong corporate governance including active and effective oversight by the banking organization’s board of directors.

Section 956 of the Dodd-Frank Act requires the federal bank regulatory agencies and the SEC to establish joint regulations or guidelines prohibiting incentive-based payment arrangements at specified regulated entities that encourage inappropriate risk-taking by providing an executive officer, employee, director or principal shareholder with excessive compensation, fees, or benefits or that could lead to material financial loss to the entity. The federal bank regulatory agencies issued such proposed rules in April 2011 and issued a revised proposed rule in June 2016. The revised proposed rule would apply to all banks, among other intuitions, with at least $1 billion in average total consolidated assets, for which it would go beyond the existing Guidance on Sound Incentive Compensation Policies to (i) prohibit certain types and features of incentive-based compensation arrangements for senior executive officers, (ii) require incentive-based compensation arrangements to adhere to certain basic principles to avoid a presumption of encouraging inappropriate risk, (iii) require appropriate board or committee oversight and (iv) establish minimum recordkeeping and (v) mandate disclosures to the appropriate federal bank regulatory agency.

The Company’s subsidiary, Properis Financial Solutions, LLC, which offers certain investment services and advice to the Company’s customers, may be impacted by final rules issued by the Department of Labor (the “DOL”) in April 2016, which are being phased into effect between June 2016 and January 2018. However, in response to the President’s February 3, 2017 instruction to the DOL to reexamine the rule, on March 2, 2017, the DOL published a proposal in the Federal Register to delay implementation of the rule until June 9, 2017 while the DOL studies the rule and considers whether to revise or rescind it. It is presently unknown when (if at all) the fiduciary rule will be implemented as well as what form it might ultimately take. Accordingly, the impact of the rule on the Company and its customers depends on the outcome of the DOL’s reexamination of the rule and the future actions the DOL takes as a result.

The following is a summary of the material risks related to our business and an investment in the Company’s securities.

Net interest income is the primary source of income for us. For the year ended December 31, 2016, net interest income of $60.6 million represented 81.9% of our total revenues. Growth of our net interest income is highly dependent on increases in outstanding commercial loans. If our anticipated loan production cannot be achieved due to the competitive nature of the market or pay downs are elevated, then net interest income will not increase. In addition, if the cost of funds is not properly managed in an increasing rate environment, net interest income could decline.

Non-interest income, which totaled $13.4 million in the year ended December 31, 2016, is a significant source of revenue for the Company and an important component of the Company’s results of operations. Increasing fee and service charge revenue could be challenging as a result of changing consumer behavior and the impact of changes in regulations. Key drivers of bank fees and service charges are the number of deposit accounts and related transaction activity. We may not be able to expand our market presence in our existing market areas or successfully enter new markets. If we cannot increase the number of our deposit customers, non-interest income will not improve.

A weak economy, low demand and competition for credit may impact our ability to successfully execute our growth plan and adversely affect our business, financial condition, results of operations, reputation and growth prospects. While we believe we have the executive management resources and internal systems in place to successfully manage our future growth, there can be no assurance growth opportunities will be available or that we will successfully manage our growth.

Increases in nonperforming assets will have an adverse effect on our financial condition and results of operations.

Our nonperforming assets (which consist of nonaccrual loans, assets acquired through foreclosure and troubled debt restructurings), totaled $3.1 million at December 31, 2016 as compared to $3.4 million at December 31, 2015 and $15.7 million at December 31, 2014. Our nonperforming assets adversely affect our net income in various ways. We do not record interest income on nonaccrual loans and assets acquired through foreclosure. We must establish an allowance for loan losses that reserves for losses inherent in the loan portfolio that are both probable and reasonably estimable through current period provisions for loan losses. From time to time, we also write down the value of properties in our portfolio of assets acquired through foreclosure to reflect changing market values. Additionally, there are legal fees associated with the resolution of problem assets as well as carrying costs such as taxes, insurance and maintenance related to assets acquired through foreclosure. The resolution of nonperforming assets requires the active involvement of management, which can distract management from its overall supervision of operations and other income producing activities. Finally, if our estimate of the allowance for loan losses is inadequate, we will have to increase the allowance for loan losses accordingly, which will have an adverse effect on financial condition and results of operations. There can be no assurance that the Company will not experience future increases in non-performing assets.

Natural disasters can disrupt our operations, result in damage to our properties, reduce or destroy the value of the collateral for our loans and negatively affect the local economies in which we operate, which could have a material adverse effect on our results of operations and financial condition. The occurrence of a natural disaster could result in one or more of the following: (1) an increase in delinquent loans; (2) an increase in problem assets and foreclosures; (3) a decrease in the demand for our products and services; or

(4) a decrease in the value of the collateral for loans, especially real estate, in turn reducing customers’ borrowing power, the value of assets associated with problem loans and collateral coverage.

The occurrence of any failure, breach, or interruption in service involving our systems or those of our service providers, including as a result of a cyber-attack, could damage our reputation, cause losses, increase our expenses, and result in a loss of customers, an increase in regulatory scrutiny, or expose us to civil litigation and possibly financial liability, any of which could adversely impact our financial condition, results of operations, and the market price of our stock.

Communications and information systems are essential to the conduct of our business, as we use such systems to manage our customer relationships, our general ledger, our deposits and our loans. In the normal course of our business, we collect, process, retain and transmit (by email and other electronic means) sensitive and confidential information regarding our customers, employees and others. We also outsource certain aspects of our data processing to certain third-party providers. In addition to confidential information regarding our customers, employees and others, we, and in some cases a third party, compile, process, transmit and store proprietary, non-public information concerning our business, operations, plans and strategies. As a result, our business and operations depend on the secure processing, storage and transmission of confidential and other information in our computer systems and networks and those of our third party service providers. Although we devote significant resources and management focus to ensuring the integrity of our systems through information security measures and business continuity programs, our facilities, computer systems, software and networks, and those of our third party service providers, may be vulnerable to external or internal security breaches, acts of vandalism, unauthorized access, misuse, computer viruses or other malicious code and cyber-attacks that could have a security impact. In addition, breaches of security may occur through intentional or unintentional acts by those having authorized or unauthorized access to our confidential or other information or the confidential or other information of our customers, clients or counterparties. While we regularly review security assessments that were conducted on our third party service providers that have access to sensitive and confidential information, there can be no assurance that their information security protocols are sufficient to withstand a cyber-attack or other security breach.

Information security risks for financial institutions like us have increased recently in part because of new technologies, the use of the Internet and telecommunications technologies (including mobile devices) to conduct financial and other business transactions and the increased sophistication and activities of organized crime, perpetrators of fraud, hackers, terrorists, nation states, and others. In addition to cyber-attacks or other security breaches involving the theft of sensitive and confidential information, hackers recently have engaged in attacks against large financial institutions, particularly distributed denial of service attacks that are designed to disrupt key business services, such as customer-facing web sites. We are not able to anticipate or implement effective preventive measures against all security breaches of these types, especially because the techniques used change frequently and because attacks can originate from a wide variety of sources.

We use a variety of physical, procedural and technological safeguards to prevent or limit the impact of system failures, interruptions and security breaches and to protect confidential information from mishandling, misuse or loss, including detection and response mechanisms designed to contain and mitigate security incidents. However, there can be no assurance that such events will not occur or that they will be promptly detected and adequately addressed if they do, and early detection of security breaches may be thwarted by sophisticated attacks and malware designed to avoid detection. If there is a failure in or breach of our computer systems or networks, or those of a third-party service provider, the confidential and other information processed and stored in, and transmitted through, such computer systems and networks could potentially be jeopardized, or could otherwise cause interruptions or malfunctions in our operations or the operations of our customers, clients or counterparties.

The occurrence of any of the foregoing could subject us to litigation or regulatory scrutiny, cause us significant reputational damage or erode confidence in the security of our systems, products and services, cause us to lose customers or have greater difficulty in attracting new customers, have an adverse effect on the value of our common stock or subject us to financial losses that are either not insured or not fully covered by insurance, any of which could have a material adverse effect on our business, financial condition or results of operations. Furthermore, as information security risks and cyber threats continue to evolve, we may be required to expend significant additional resources to further enhance or modify our information security measures and/or to investigate and remediate any information security vulnerabilities or other exposures arising from operational and security risks.

Weakness in the economic and banking environments have posed significant challenges for us in the past and an economic downturn could adversely affect our financial condition and results of operations in the future.

Our results of operations and financial condition are affected by conditions in the capital markets and the economy in general. Our financial performance is highly dependent upon the business environment in the markets where we operate and in the U.S. as a whole. Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, business activity or investor or business confidence, limitations on the availability, or increases in the cost, of credit and capital, changes in the rate of

inflation, changes in interest rates, high unemployment, natural disasters, acts of war or terrorism, global economic conditions and geopolitical factors, or a combination of these or other factors. In the past, national, regional and local economic challenges have negatively impacted our financial condition. In particular, declines in the housing market, increases in unemployment and under-employment have negatively impacted the credit performance of loans and resulted in significant write-downs of asset values by financial institutions, including the Bank. While the economic environment has improved recently, a future downturn in the economy may further impact the Bank’s results of operations and financial condition. For example, an increase in unemployment, a decrease in real estate values or changes in interest rates, as well as other factors, such as a substantial decline in the stock market, could weaken the economies of the communities the Bank serves and expose us to the following risks in connection with these events:

If these conditions or similar ones occur, we may experience continuing or increased adverse effects on our financial condition and results of operations.

As a result of the Dodd-Frank Act and recent rulemaking, we are now subject to more stringent capital requirements

The federal bank regulatory agencies adopted the Final Capital Rules, which amended the regulatory risk-based capital rules applicable to the Company and the Bank. The Final Capital Rules implement the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act. The Final Capital Rules, among other things, (i) established a new common equity Tier 1 capital ratio of 4.5% and (ii) increased the Tier 1 capital ratio to 6% (from 4%). In addition, the Final Capital Rules added a requirement to maintain a minimum Conservation Buffer of 2.5% above these new regulatory minimum capital ratios. Under the Final Capital Rules, an institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. The Final Capital Rules are described in more detail in “Supervision and Regulation” above. The failure to meet the established capital requirements could result in the federal bank regulatory agencies placing limitations or conditions on our activities or restricting the commencement of new activities, and such failure could subject us to a variety of enforcement remedies available to the federal regulatory authorities, including limiting our ability to pay dividends; issuing a directive to increase our capital; and terminating our FDIC deposit insurance.

The occurrence of various events may adversely affect our ability to fully utilize net operating losses or recover our deferred tax asset.

In recent years, we experienced substantial operating losses. Under Section 172 (“Section 172”) of the Internal Revenue Code, as amended (the “Code”), and rules promulgated by the Internal Revenue Service, we may “carry forward” our net operating losses (“NOLs”) in certain circumstances to offset any current and future earnings and thus reduce our federal income tax liability, subject to certain requirements and restrictions. To the extent that the NOLs do not otherwise become limited, we believe that we will be able to carry forward a significant amount of the NOLs, and therefore these NOLs could be a substantial asset to us. If, however, we experience an ownership change under Section 382 of the Code, our ability to use the NOLs may be substantially limited, and the timing of the usage of the NOLs could be substantially delayed, which could therefore significantly impair the value of that asset.

In general, an ownership change occurs when, as of any testing date, the percentage of stock of a corporation owned by one or more “5-percent shareholders” as defined in Section 382(k) and the related Treasury Regulations, has increased by more than 50 percentage points over the lowest percentage of stock of the corporation owned by such shareholder at any time during the three year period preceding such date. In general, persons who own 5% or more of a corporation’s stock are 5-percent shareholders, and all other persons who own less than 5% of a corporation’s stock are treated, together, as a single, public group 5-percent shareholder, regardless of whether they own an aggregate of 5% or more of a corporation’s stock. However, U.S. Treasury regulations provide circumstances which result in multiple public group 5-percent shareholders. If a corporation experiences an ownership change, it is generally subject to an annual limitation in the use of NOLs, which limits its ability to use its NOLs to an amount equal to the equity value of the corporation multiplied by the federal long-term tax-exempt rate.

If we were to experience an ownership change, we could potentially have, in the future, higher United States federal income tax liabilities than we would otherwise have had and it may also result in certain other adverse tax consequences to us.

In the fourth quarter of 2016, the Company partially reversed a valuation allowance against its deferred tax asset, increasing its fourth quarter net income by $53.7 million. The Company made this determination based upon a number of factors, including the Company’s completion of eight consecutive quarters of profitability, its demonstrated ability to meet or exceed budgets, its forecast of future profitability under multiple scenarios that support the partial utilization of NOLs prior to their expiration between 2017 through 2035 and improvements in credit risk management and credit quality measures that have resulted in reduced credit risk and improve management’s ability to forecast future credit losses, among others. At December 31, 2016, the Company maintained a valuation allowance of $73.2 million against its gross deferred tax asset. The release of this remaining valuation allowance would have a positive impact on earnings and capital but is dependent on our continued ability to provide positive evidence of a return to sustained profitability. However, there is no assurance that we will be able to sustain our recent profitability, or accelerate it to the extent necessary to be able to utilize all of the NOLs we have generated, or that the conditions that led to our losses will not return. Our ability to generate sustained profitability in the amounts necessary to realize our deferred tax assets against future taxable income depends upon general economic and market conditions, interest rates, and our ability to meet our strategic plans. In addition, if we are unable to generate adequate sustained profitability, we may be required to record a new valuation allowance against some or all of our deferred tax assets, which would negatively impact our financial results. Accordingly, there can be no assurance as to when we will again be in a position to recapture the remaining benefits of our deferred tax asset.

Governmental regulation and regulatory actions against us may impair our operations or restrict our growth.

We are subject to significant governmental supervision and regulation by the FRB, the OCC and the FDIC. These regulations are also designed primarily for the protection of the deposit insurance funds and consumers, but not for the benefit of our shareholders. Banking laws and regulations change from time to time. Bank regulations can hinder our ability to compete with financial services companies that are not regulated in the same manner or are less regulated. Federal and state bank regulatory agencies regulate many aspects of our operations. These areas include:

In addition, we are subject to regulations regarding corporate governance and permissible business activities, acquisition and merger restrictions, limitations on intercompany transactions, capital adequacy requirements and requirements for anti-money laundering programs and other compliance matters. In addition, in September 2016, the CFPB and OCC entered into a consent order with a large national bank alleging widespread improper sales practices, which prompted the federal bank regulatory agencies to conduct a horizontal review of sales practices throughout the banking industry. The elevated attention likely will result in continued additional regulatory scrutiny and regulation of incentive arrangements, which could adversely impact the delivery of services and increase compliance costs. As a result of the financial crisis which occurred in the banking and financial markets beginning in 2007, the overall bank regulatory climate is now marked by caution, conservatism and a renewed focus on compliance and risk management. Overall compliance with the applicable regulations increases our operating expenses, requires a significant amount of management’s attention and could be a competitive disadvantage with respect to nonregulated competitors.

Our failure to comply with applicable regulations, or the failure to develop, implement and comply with corrective action plans to address any identified areas of noncompliance, may result in the assessment of fines and penalties and the commencement of informal or formal regulatory enforcement actions against us. Any remedial measure or enforcement action, whether formal or informal, could impose further restrictions on our ability to operate our business and adversely affect our prospects, financial condition or results of operations. In addition, any formal enforcement action could harm our reputation and our ability to retain and attract customers and impact the trading price of our common stock. The occurrence of one or more of these events may have a material adverse effect on our business, financial condition or results of operations.

The financial services industry, as well as the broader economy, may be subject to new legislation, regulation, and government policy.

At this time, it is difficult to predict the legislative and regulatory changes that will result from the combination of a new

President of the United States and the first year since 2010 in which both Houses of Congress and the White House have majority memberships from the same political party. In recent years, however, both the new President and senior members of the House of Representatives have advocated for significant reduction of financial services regulation, to include amendments to the Dodd-Frank Act and structural changes to the CFPB. The new Administration and Congress also may cause broader economic changes due to changes in governing ideology and governing style. New appointments to the Board of Governors of the Federal Reserve could affect monetary policy and interest rates, and changes in fiscal policy could affect broader patterns of trade and economic growth. Future legislation, regulation, and government policy could affect the banking industry as a whole, including our business and results of operations, in ways that are difficult to predict. In addition, our results of operations also could be adversely affected by changes in the way in which existing statutes and regulations are interpreted or applied by courts and government agencies.

The market value of our securities portfolio may be impacted by the level of interest rates and the credit quality and strength of the underlying issuers.

If a decline in market value of a security is determined to be other-than-temporary, under accounting principles generally accepted in the United States of America, we are required to write these securities down to their estimated fair value through a charge to earnings. At December 31, 2016, we owned one non-rated single issuer trust preferred security classified as available for sale with an amortized cost of $3.2 million and estimated fair value of $3.2 million on which the cumulative other-than-temporary impairment is $1.2 million as of December 31, 2016. The Company did not recognize a credit related impairment loss on this security in 2016, 2015 or 2014. We perform an ongoing analysis of this security. Future changes in interest rates or the credit quality and strength of the underlying issuers may reduce the market value of this and other securities we own from time to time.

Our loan portfolio includes a substantial amount of commercial real estate and commercial and industrial loans. The credit risk related to these types of loans is greater than the risk related to residential loans.

Our commercial loan portfolio, which include commercial real estate loans, totaled $1.28 billion at December 31, 2016, comprising approximately 79% of our total gross loans held-for-investment. Commercial loans generally carry larger loan balances and involve a greater degree of risk of nonpayment or late payment than home equity loans or residential mortgage loans.

Furthermore, commercial real estate loans secured by owner-occupied properties are dependent upon the successful operation of the borrower’s business. If the operating company suffers difficulties in terms of sales volume and/or profitability, the borrower’s ability to repay the loan may be impaired. Loans secured by properties where repayment is dependent upon payment of rent by third party tenants or the sale of the property may be impacted by loss of tenants, lower lease rates needed to attract new tenants or the inability to sell a completed project in a timely fashion and at a profit. Our failure to adequately implement enhanced risk management policies, procedures and controls could result in an increased rate of delinquencies, increased losses from these portfolios and adversely affect our ability to increase our commercial real estate loan portfolio going forward. The collateral for our commercial loans that are secured by real estate are classified as 36% owner-occupied properties and 64% non-owner occupied properties.

Overall, our market has expanded within the State of New Jersey and in the State of New York. Likewise, our commercial lending activities have grown, especially in the central and more recently the northern parts of New Jersey. In recent years, commercial real estate markets have been experiencing substantial growth, and increased competitive pressures have contributed significantly to historically low capitalization rates and rising property values. Commercial real estate prices, according to many U.S. commercial real estate indices, are currently above the 2007 peak levels that contributed to the financial crisis. Accordingly, the federal bank regulatory agencies, as well as some market analysts, have expressed concerns about weaknesses in the current commercial real estate market. A significant broad based deterioration in economic conditions throughout New Jersey and New York, including the real estate markets, could have a material adverse effect on the credit quality of our loan portfolios and, consequently, on our financial condition, results of operations and cash flows.

If we fail to provide an adequate allowance for loan losses, there could be a significant negative impact on our results of operations.

The risk of loan losses varies with, among other things, general economic conditions, the type of loan being made, the creditworthiness of the borrower over the term of the loan and, in the case of a collateralized loan, the value of the collateral for the loan. Based upon factors such as historical experience, an evaluation of economic conditions and a regular review of delinquencies and loan portfolio quality, management makes various assumptions and judgments about the ultimate collectability of the loan portfolio and provides an allowance for loan losses. At December 31, 2016, our allowance for loan losses was approximately $15.5 million which represented approximately 0.97% of total loans held-for-investment and approximately 501% of nonperforming loans held-for-investment. If management’s assumptions and judgments prove to be incorrect and the allowance for loan losses is inadequate to absorb future credit losses, or if the federal bank regulatory agencies require us to increase our allowance for loan losses,

our financial condition, results of operations and cash flows could be significantly and adversely affected. Although we attempt to mitigate the credit risks associated with our underwriting standards and collection procedures, these standards and procedures may not offer adequate protection against the risk of default, especially in periods of economic uncertainty and high unemployment. Given that the components of the allowance for loan losses are based partially on historical losses and on risk rating changes in response to recent events, required reserves may trail the emergence of any unforeseen deterioration in credit quality.

The FASB’s recently adopted ASU 2016-13 will result in a significant change in how we recognize credit losses and may have a material impact on our financial condition or results of operations.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, which replaces the current “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the Current Expected Credit Loss (“CECL”) model. Under the CECL model, we will be required to present certain financial assets carried at amortized cost, such as loans held-for-investment and held-to-maturity debt securities, at the net amount expected to be collected. The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the “incurred loss” model required under current GAAP, which delays recognition until it is probable a loss has been incurred. Accordingly, we expect that the adoption of the CECL model will materially affect how we determine our allowance for loan losses and could require us to significantly increase our allowance. Moreover, the CECL model may create more volatility in the level of our allowance for loan losses. If we are required to materially increase our level of allowance for loan losses for any reason, such increase could adversely affect our business, financial condition and results of operations. The new CECL standard will become effective for us for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years. We are currently evaluating the impact the CECL model will have on our accounting, but we expect to recognize a one-time cumulative-effect adjustment to our allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective. We cannot yet determine the magnitude of any such one-time cumulative adjustment or of the overall impact of the new standard on our financial condition or results of operations.

Competition from other financial institutions in originating loans, attracting deposits and providing various financial services may adversely affect our profitability and results of operations.

The market areas in which we operate are among the most highly competitive in the country. There is substantial competition in originating loans and in attracting and retaining deposits. The competition comes principally from other banks (both larger and smaller), savings institutions, credit unions, mortgage banking companies and the myriad of nonbanking competitors, such as full service brokerage firms, money market mutual funds, insurance companies and other institutional lenders. U.S. government involvement in banking and mortgage banking, through regulation and examination, a sustained low interest rate environment and rapidly evolving traditional and non-traditional competition in our marketplace, have combined to adversely impact current and projected operating results. The U.S. government’s intervention in the mortgage and credit markets has resulted in a narrowing of mortgage spreads, lower yields and accelerated mortgage prepayments. We have commercial real estate lending and business banking operations, and these business lines are also being aggressively pursued by a number of competitors, both large and small. In addition, in December 2016, the OCC announced that it would begin considering applications from financial technology companies to become special purpose national banks and requested comments about how it can foster responsible innovation in the chartering process while continuing to provide robust oversight.

Ultimately, competition may adversely affect the rates we pay on deposits and charges on loans, thereby potentially adversely affecting our profitability and results of operations.

We rely on other companies to provide certain services and key components of our business infrastructure.

Third party vendors provide certain services and key components of our business infrastructure, including certain of our fee income services such as cash management services. While we have selected these third party vendors carefully, we do not control their actions. Any problems caused by these third parties, including as a result of their not providing us their services for any reason or their performing their services poorly, could adversely affect our ability to deliver products and services to our customers or otherwise conduct our business efficiently and effectively. Replacing these third party vendors could also entail significant delay and expense.

Failure to attract and retain key personnel could have a material adverse effect on our financial condition and results of operations.

Our success depends, in large part, on our ability to attract and retain skilled people. The unexpected loss of services of one or more of our key personnel could have a material adverse impact on our business because of their skills, knowledge of our markets and years of industry experience. In addition, our future success depends in part on our ability to identify and develop talent to succeed existing management and other key personnel. The replacement of our management team or other key personnel likely would involve significant time and costs, and the loss of these employees could have a material adverse impact on our business.

The most significant component of net income is net interest income, which accounted for 81% of our total revenue in 2016. Net interest income is the difference between the interest income generated on interest-earning assets, such as loans and investments, and the interest expense paid on the funds required to support interest-earning assets, namely deposits and borrowed funds. Interest income, which represents income from loans, investment securities and short-term investments is dependent on many factors including the volume of interest-earning assets, the level of interest rates, the interest rate sensitivity of the interest-earning assets and the levels of nonperforming loans. The cost of funds is a function of the amount and type of funds required to support the interest-earning assets, the rates paid to attract and retain deposits, rates paid on borrowed funds and the levels of non-interest bearing demand deposits.

Interest rate sensitivity is a measure of how our assets and liabilities react to changes in market interest rates. We expect that this interest sensitivity will not always be perfectly balanced. This means that either our interest-earning assets will be more sensitive to changes in market interest rates than our interest bearing liabilities, or vice versa. If more interest-earning assets than interest-bearing liabilities reprice or mature during a time when interest rates are declining, then our net interest income may be reduced. If more interest-bearing liabilities than interest-earning assets reprice or mature during a time when interest rates are rising, then our net income may be reduced.

Interest rates are sensitive to many factors that are beyond our control, including general economic conditions, competition and policies of various governmental and regulatory agencies, particularly the policies of the FRB. Changes in monetary policy, including changes in interest rates, could influence not only the interest we receive on loans and investment securities and the amount of interest we pay on deposits and borrowings, but such changes could also affect (i) our ability to originate loans and obtain deposits, (ii) the fair value of our financial assets and liabilities, including the available for sale securities portfolio, and (iii) the average duration of our interest-earning assets. Changes in monetary policy could also expose us to the risk that interest-earning assets may be more responsive to changes in interest rates than interest-bearing liabilities, or vice versa (repricing risk), the risk that the individual interest rates or rate indices underlying various interest-earning assets and interest-bearing liabilities may not change in the same degree over a given time period (basis risk), and the risk of changing interest rate relationships across the spectrum of interest-earning asset and interest-bearing liability maturities (yield curve risk), including a prolonged flat or inverted yield curve environment. Any substantial, unexpected and prolonged change in market interest rates could have a material adverse effect on our financial condition and results of operations.

Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have historically led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. There is no assurance that any such losses would not materially and adversely affect our financial condition and results of operations.

If the goodwill that we have recorded in connection with our acquisitions becomes impaired, there could be a negative impact on our profitability.

Under the acquisition method of accounting for all business combinations, if the purchase price of an acquired company exceeds the fair value of the company’s net assets, the excess is carried on the acquirer’s balance sheet as goodwill and identifiable intangible assets. At December 31, 2016, we had $38.2 million of goodwill on our balance sheet. Companies must evaluate goodwill for impairment at least annually.

Write-downs of the amount of any impairment are to be charged to the results of operations in the period in which the impairment is determined. No impairment was identified in 2016. There can be no assurance that future evaluations of goodwill will not result in determinations of impairments and write-downs which could have an adverse non-cash impact on our financial condition and results of operations.

Trading volume of our common stock is less than that of other larger financial services companies which may adversely affect the market price and limit shareholders’ ability to quickly and easily sell their common stock, particularly in large quantities.

Although our common stock is listed for trading on the NASDAQ Global Select Market, the trading volume is less than that of other larger financial services companies. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing buyers and sellers at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control. Given the lower trading volume of our common stock, significant sales of our common stock, or the expectation of these sales, could cause the price of our common stock to decline. As a result, shareholders may find it difficult to sell a significant number of shares at the prevailing market price.

The terms of the securities purchase agreements grant certain rights to specific investors that other shareholders do not have.

Pursuant to securities purchase agreements dated July 7, 2010 (the “2010 Securities Purchase Agreements”), entered into between the Company and each of an affiliate of WL Ross & Co., LLC, Siguler Guff & Company, LP, certain members and affiliates of the Brown family and certain other institutional and accredited investors (collectively, the “Investors”), the Company granted each of the Investors certain “gross-up” rights in connection with certain securities offerings that the Company may conduct at the same price (net of underwriting discounts) and on the same terms as those proposed in the offering in an aggregate amount sufficient to enable them to maintain their respective ownership interest in us.

We may issue additional equity securities, or engage in other transactions which dilute our book value or affect the priority of the common stock, which may adversely affect the market price of our common stock.

Our board of directors may determine from time to time that we need to raise additional capital by issuing additional shares of our common stock or other securities. Except pursuant to the rules of the NASDAQ Stock Market, we are not restricted from issuing additional shares of common stock, including securities that are convertible into or exchangeable for, or that represent the right to receive, common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of any future offerings, or the prices at which such offerings may be affected. Such offerings could be dilutive to common shareholders or reduce the market price of our common stock. Holders of our common stock are not entitled to preemptive rights or protection against dilution. New investors also may have rights, preferences and privileges that are senior to, and that adversely affect, our then current common shareholders.

Our directors and executive officers and their affiliates own approximately 45% of the outstanding common stock. As a result of their combined ownership, our directors and executive officers could make it more difficult to obtain approval for some matters submitted to a shareholder vote, including acquisitions of our Company. The results of the vote may be contrary to the desires or interests of the other shareholders.

Directors and executive officers and their affiliates own approximately 45% of the outstanding shares of common stock of the Company at December 31, 2016, excluding shares which may be acquired upon the exercise of stock options or upon the vesting of restricted stock units. By voting against a proposal submitted to shareholders, the directors and officers, as a group, may be able to make approval more difficult for proposals requiring the vote of shareholders, such as some mergers, share exchanges, asset sales, and amendments to our amended and restated certificate of incorporation.

Provisions of our Amended and Restated Certificate of Incorporation and the New Jersey Business Corporation Act could deter takeovers which are opposed by the Board of Directors.

Our amended and restated certificate of incorporation requires the approval of 80% of our outstanding shares for any merger or consolidation unless the transaction meets certain fair price criteria or the business combination has been approved or authorized by the Board of Directors. As a New Jersey corporation with a class of securities registered with the SEC, we are governed by certain provisions of the New Jersey Business Corporation Act that also restrict business combinations with shareholders owning 10% or more of our outstanding shares (“interested shareholders”) for a period of five years after such interested shareholder achieves such status unless the business combination is approved by the Board of Directors prior to the shareholder becoming an interested shareholder. The New Jersey Shareholders’ Protection Act also restricts business combinations with an interested shareholder after the five-year period unless the transaction receives the approval of two-thirds of the shares outstanding, exclusive of the shares held by the interested shareholder or the transaction satisfies certain fair price requirements. In addition, with certain limited exceptions, federal regulations prohibit a person or company or a group of persons deemed to be “acting in concert” from, directly or indirectly, acquiring

more than 10% (5% if the acquirer is a bank holding company) of any class of our voting stock or obtaining the ability to control in any manner the election of a majority of directors or otherwise direct the management or policies of any banking holding company without prior notice or application to and the approval of the FRB.

We are subject to various restrictions on our ability to pay cash dividends to our shareholders and to receive capital distributions from the Bank.

In January 2017, our Board of Directors declared our third consecutive quarterly cash dividend, payable in March 2017. The dividend is a reflection of our recent trend of generating positive net income from operations. However, we are subject to certain regulatory restrictions on our ability to declare and pay dividends. As a bank holding company, our ability to declare and pay dividends is dependent on certain federal regulatory considerations. Further, the Bank is limited in the payment of dividends without the approval of the OCC of a total amount not to exceed the net income for that year to date plus the retained net income for the preceding two years. Federal law also prohibits national banks from paying dividends that would be greater than the bank’s undivided profits after deducting statutory bad debt in excess of the bank’s allowance for loan losses. Due to the Bank’s history of losses, any proposed dividends from the Bank to the Company are subject to regulatory approval until such time as net income for the current year combined with the prior two years is sufficient and until the Bank returns to recording overall retained earnings as opposed to the current retained deficit. In addition, federal law permits the Bank to distribute cash or other assets to the Company through a reduction of capital, subject to approval by the OCC. Under the FDICIA, an insured depository institution such as the Bank is prohibited from making capital distributions, including the payment of dividends, if, after making such distribution, the institution would become “undercapitalized” (as such term is used in the FDICIA). Payment of dividends by the Bank also may be restricted at any time at the discretion of the OCC if it deems the payment to constitute an unsafe and unsound banking practice.

Any payment of future dividends will be at the discretion of our Board of Directors and will depend on our earnings, financial condition, capital requirements, level of indebtedness, regulatory restrictions, statutory and contractual restrictions applying to the payment of dividends, and other considerations that our Board of Directors deems relevant. Accordingly, there can be no assurance that we will continue to pay dividends to our shareholders in the future.

The Company’s operations are conducted out of its 35 offices. For additional information regarding our lease obligations, see Note 16 of Notes to Consolidated Financial Statements in Item 8 of “Financial Statements and Supplementary Data.”

The Company and the Bank are periodically involved in various claims and lawsuits, such as claims to enforce liens, condemnation proceedings on properties in which the Bank holds security interests, and claims involving the making and servicing of real property loans. While the ultimate outcome of these proceedings cannot be predicted with certainty, the Company’s management, after consultation with counsel representing the Company in these proceedings, does not expect that the resolution of these proceedings will have a material effect on the Company’s financial condition, results of operations or cash flows.

The information contained under the captions “Common Stock Price Range and Dividends” and “Stock Performance” in the 2016 Annual Report to Shareholders, included herein as Exhibit 13 to this Report is incorporated herein by reference.

The information contained under the caption “Selected Financial Data” in the 2016 Annual Report to Shareholders included herein as Exhibit 13 is incorporated herein by reference. The information contained herein is only a summary and you should read it in conjunction with our audited consolidated financial statements in Item 8.

The information contained under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2016 Annual Report to Shareholders included herein as Exhibit 13 is incorporated herein by reference.

The information contained under the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources - Gap Analysis” and “ - Net Interest Income Simulation” in the 2016 Annual Report to Shareholders included herein as Exhibit 13 is incorporated herein by reference.

The Consolidated Financial Statements of Sun Bancorp, Inc. and the Summarized Quarterly Financial Data included in the notes thereto, which is included in the 2016 Annual Report to Shareholders, included herein as Exhibit 13 are incorporated herein by reference.

Based on their evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act), the Company’s principal executive officer and principal financial officer have concluded that as of the end of the period covered by this Annual Report on Form 10-K such disclosure controls and procedures were designed and functioning effectively to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

Management’s report on the Company’s internal control over financial reporting appears in the 2016 Annual Report to Shareholders, included herein as Exhibit 13.

The attestation report of Deloitte & Touche LLP on the Company’s internal control over financial reporting, as defined in Rule 15d-15e of the Exchange Act, appears in the 2016 Annual Report to Shareholders, included herein as Exhibit 13.

During the last quarter of the year under report, there was no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

The information contained under the captions “Proposal I-Election of Directors,” “Corporate Governance,” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s Proxy Statement for its 2017 Annual Meeting of Shareholders (the “Proxy Statement”) is incorporated herein by reference.

The information contained under the captions “Compensation Discussion and Analysis,” “Compensation Committee Report,” “Compensation Risk Assessment,” “Executive Compensation,” and “Director Compensation” in the Proxy Statement is incorporated herein by reference.

The information contained under the caption “Security Ownership of Certain Beneficial Owners” in the Proxy Statement is incorporated herein by reference.

The information contained under the caption “Security Ownership of Certain Beneficial Owners” and “Proposal I - Election of Directors” in the Proxy Statement is incorporated herein by reference.

Management of the Company knows of no arrangements, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the Company.

Set forth below is information as of December 31, 2016 with respect to compensation plans under which equity securities of the Company are authorized for issuance.

	(a)		(b)		(c)
	Number of securities to be issued upon exercise of outstanding options, warrants and rights (2)		Weighted-average exercise price of outstanding options, warrants and rights (3)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by shareholders ⁽¹⁾		871,465	$	22.37		910,599
Equity compensation plans not approved by shareholders	n/a		n/a		n/a
Total		871,465	$	22.37		910,599

The information contained under the section captioned “Related Party Transactions” and “Corporate Governance” in the Proxy Statement is incorporated herein by reference.

The information contained under the caption “Proposal II – Ratification of the Appointment of Independent Registered Public Accounting Firm” in the Proxy Statement is incorporated herein by reference.

(a)	The following documents are filed as a part of this report:

	(1)	The following consolidated financial statements and the report of independent registered public accounting firm of the Registrant included in the Registrant’s Annual Report to Shareholders are included herein as Exhibit 13 and also in Item 8 hereof.

		Management’s Annual Report on Internal Control over Financial Reporting

		Reports of Independent Registered Public Accounting Firm

		Consolidated Statements of Financial Condition as of December 31, 2016 and 2015

		Consolidated Statements of Operations for the Years Ended December 31, 2016, 2015 and 2014

		Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2016, 2015 and 2014

		Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2016, 2015 and 2014

		Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014

		Notes to Consolidated Financial Statements

	(2)	There are no financial statements schedules that are required to be included in Part II, Item 8.

(b)	The following exhibits are filed as part of this report:

	3.1	Amended and Restated Certificate of Incorporation of Sun Bancorp, Inc. (1)

	3.2	Amended and Restated Bylaws of Sun Bancorp, Inc. (2)

	4.1	Common Security Specimen (3)

	10.1	Amended and Restated 2004 Stock-Based Incentive Plan (4)

	10.2	2010 Stock-Based Incentive Plan (5)

	10.3	2015 Omnibus Stock Incentive Plan (6)

	10.4	Employment Agreement dated March 31, 2014 by and among Sun Bancorp, Inc., Sun National Bank and Thomas M. O’Brien (7)

	10.5	Securities Purchases Agreement, dated as of July 7, 2010, between Sun Bancorp, Inc. and WLR SBI AcquisitionCo, LLC (8)

	10.6	Securities Purchase Agreement, dated as of July 7, 2010, between Sun Bancorp, Inc. and Bernard A. Brown, Sidney R. Brown, Jeffrey S. Brown, Anne E. Koons, the Four Bs, Interactive Logistics, LLC, National Distribution Centers, L.R. and National Freight, Inc. (8)

	10.7	Form of Securities Purchase Agreement with Other Investors (8)

	10.8	Change-in Control Continuity Agreement dated September 22, 2016 by and between Sun Bancorp, Inc. and Thomas R. Brugger

	10.9	Change-in Control Continuity Agreement dated September 22, 2016 by and between Sun Bancorp, Inc. and Michele B. Estep

	10.10	Change-in Control Continuity Agreement dated September 22, 2016 by and between Sun Bancorp, Inc. and Patricia M. Schaubeck

	10.11	Change-in Control Continuity Agreement dated September 22, 2016 by and between Sun Bancorp, Inc. and Anthony J. Morris

	10.12	Change-in Control Continuity Agreement dated September 22, 2016 by and between Sun Bancorp, Inc., and Nicos Katsoulis

	11	Computation regarding earnings (loss) per share (9)

	13	2016 Annual Report to Shareholders


	21	Subsidiaries of the Registrant


	23	Consent of Deloitte & Touche LLP

	31(a)	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	31(b)	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	32	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	101.INS	XBRL Instance Document*

	101.SCH	XBRL Taxonomy Extension Schema Document*

	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document*

	101.LAB	XBRL Taxonomy Extension Label Linkbase Document*

	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document*

	101.DEF	XBRL Taxonomy Definition Linkbase Document*

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized as of March 9, 2017.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated as of March 9, 2017.

/s/ Thomas M. O’Brien		/s/ F. Clay Creasey.
Thomas M. O’Brien		F. Clay Creasey
President and Chief Executive Officer		Director
(Principal Executive Officer)

/s/ Anthony R. Coscia		/s/ Peter Galetto, Jr.
Anthony R. Coscia		Peter Galetto, Jr.
Chairman		Director

/s/ Sidney R. Brown		/s/ Keith Stock
Sidney R. Brown		Keith Stock
Director		Director

/s/ Jeffrey S. Brown		/s/ William J. Marino
Jeffrey S. Brown		William J. Marino
Director		Director

/s/ Eli Kramer		/s/ Grace C. Torres
Eli Kramer		Grace C. Torres
Director		Director

/s/ Thomas R. Brugger		/s/ Neil Kalani
Thomas R. Brugger		Neil Kalani
Executive Vice President and Chief Financial Officer (Principal Financial Officer)		Senior Vice President and Chief Accounting Officer (Principal Accounting Officer)

New Jersey		52-1382541
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)

350 Fellowship Road, Suite 101, Mount Laurel, New Jersey		08054
(Address of Principal Executive Offices)		(Zip Code)

Title of each class		Name of each exchange on which registered
Common Stock, $5.00 par value		The NASDAQ Global Select Market

		Page

	Forward-Looking Statements	3
	PART I	5
ITEM 1.	Business	5
ITEM 1A.	Risk Factors	18
ITEM 1B.	Unresolved Staff Comments	26
ITEM 2.	Properties	26
ITEM 3.	Legal Proceedings	26

ITEM 4.	Mine Safety Disclosures	26

	PART II	27
ITEM 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	27

ITEM 6.	Selected Financial Data	27

ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk	27
ITEM 8.	Financial Statements and Supplementary Data	27
ITEM 9.	Changes in and Disagreements With Accountants On Accounting and Financial Disclosure	27
ITEM 9A.	Controls and Procedures	27
ITEM 9B	Other Information	28

	PART III	28
ITEM 10.	Directors, Executive Officers and Corporate Governance	28
ITEM 11.	Executive Compensation	28
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	28

ITEM 13.	Certain Relationships and Related Transactions and Director Independence	29
ITEM 14.	Principal Accounting Fees and Services	29

	PART IV	30
ITEM 15.	Exhibits and Financial Statement Schedules	30

SIGNATURES		32

Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☐

		SUN BANCORP, INC.

By:		/s/ Thomas M. O’Brien
		Thomas M. O’Brien
		President and Chief Executive Officer
		(Duly Authorized Representative)