Sun Bancorp, Inc. Announces Second Quarter Earnings: Net Income of $3.0 Million, or $0.16 per Diluted Share; Declares Quarterly Common Cash Dividend of $0.01 - First in Company's History

MOUNT LAUREL, N.J., July 26, 2016 /PRNewswire/ --

Second Quarter Highlights:

• Sixth consecutive quarter of profitability with net income of $3.0 million, or $0.16 per diluted share, for the quarter ended June 30, 2016, and net income of $3.8 million, or $0.20 per diluted share, for the six months ended June 30, 2016.
• Declared a quarterly cash dividend of $0.01 per share; first cash dividend in the history of Sun Bancorp, Inc.
• Recorded negative provision for loan losses of $1.7 million in second quarter due to sustained strength in asset quality.
• Net interest margin increased by seven basis points to 2.98% in the quarter as compared to the first quarter of 2016 as average loan balances grew by 7% annualized during that time.
• Solid foundation continues with total risk-based capital ratio of 21.0%, tier 1 common ratio of 14.3% and leverage capital ratio of 13.2%.

Sun Bancorp, Inc. (NASDAQ: SNBC), (the "Company"), the holding company for Sun National Bank (the "Bank"), today reported net income of $3.0 million, or $0.16 per diluted share, for the quarter ended June 30, 2016, compared to net income of $826 thousand, or $0.04 per diluted share, for the quarter ended March 31, 2016, and net income of $2.8 million, or $0.15 per diluted share, for the quarter ended June 30, 2015.  The Company also declared a quarterly cash dividend of $0.01 per share on its common stock.  The dividend will be payable on September 6, 2016 to shareholders of record as of August 23, 2016.  This is the first cash dividend that the Company has ever paid.

"This quarter continued our trend of generating positive net income from operations," stated President & CEO Thomas M. O'Brien.  "The underlying foundations of the Company – strong capital, relationship-based commercial lending, focused expense management, and strong asset quality – all continue to show sustained progress.  We are also pleased to announce that the Board of Directors has declared the Company's first-ever cash dividend."    

"While we experienced an increase in revenue of $1 million from the prior linked quarter, the banking industry continues to experience revenue generation challenges against the headwinds of slow economic growth and persistent low interest rates.  We will remain diligent in tightly controlling expenses and focusing on maintaining asset quality and risk management discipline so that the Company sustains its strong foundation."

Discussion of Results:

Balance Sheet

The balance sheet was relatively stable during the quarter as assets totaled $2.19 billion at June 30, 2016, as compared to $2.17 billion at March 31, 2016 and $2.21 billion at December 31, 2015.  Cash and cash equivalents totaled $168.8 million at June 30, 2016, as compared to $136.2 million at March 31, 2016 and $204.3 million at December 31, 2015.  The increase in cash and cash equivalents during the second quarter of 2016 was primarily due to mild growth in deposits and a small decline in period end total loans. The decrease in cash and cash equivalents from December 31, 2015 resulted primarily from year-to-date loan growth. 

Investments decreased by $3.6 million in the quarter to $296.7 million.  The Company sold $22.5 million of collateralized loan obligations, bringing the investment portfolio into full compliance with the Volcker Rule one year in advance of the required implementation date.  The Bank also sold $8.2 million of residential mortgage-backed securities ("MBS") and purchased $37 million of agency multifamily MBS.  In addition, the Bank recorded a net gain of $387 thousand this quarter as a result of selling its stock in Visa Class B shares.

Net loans held-for-investment totaled $1.55 billion at June 30, 2016, as compared to $1.56 billion at March 31, 2016 and $1.53 billion at December 31, 2015. Although average loans increased by 7% annualized from the first quarter, period-end loans fell from March 31, 2016 primarily due to relatively high pay off activity in the Bank's loan portfolios.  Commercial Real Estate ("CRE") owner occupied loans grew by $6.9 million in the second quarter of 2016, while Commercial & Industrial ("C&I") loans and CRE non-owner occupied were basically flat.  The residential and home equity loan portfolios decreased by $12.6 million in the quarter as a result of normal amortizations and the absence of new loan originations in those categories.  The increase in net loans held-for-investment from December 31, 2015 was due to year-to-date commercial loan originations of $201.1 million, partially offset by pay downs of commercial and consumer loans.

"Achieving net loan growth remains a challenge against the backdrop of normal amortization of the Bank's loan portfolio as well as payoff activity," stated O'Brien.  "However, we strongly believe that our organic commercial lending originations must continue to meet our pricing and risk management parameters." 

Deposits were $1.71 billion at June 30, 2016, as compared to $1.70 billion at March 31, 2016 and $1.75 billion at December 31, 2015.  The increase from the linked first quarter is due to the implementation of the Bank's new relationship-based deposit strategy.

"We are seeing indications that our new relationship deposit strategy is having a positive impact, as evidenced by sustained deposit fee income growth, larger household balances, and a shifting deposit mix," stated O'Brien. 

Net Interest Income and Margin

Net interest income was $14.9 million for the quarter ended June 30, 2016, compared to $14.5 million for the quarter ended March 31, 2016 and $15.4 million for the quarter ended June 30, 2015 primarily reflecting fluctuations in prepayment fees on loans.  Loan fees totaled $751 thousand in the second quarter, an increase of $457 thousand from the previous quarter, due primarily to an increase in loan payoff activity and related prepayment penalty fees.  The Company's net interest margin was 2.98% for the three months ended June 30, 2016 as compared to 2.91% for the linked March 31, 2016 quarter and 2.79% in the June 30, 2015 quarter due to an increase in average commercial loan balances to $1.20 billion for the quarter ended June 30, 2016 from $1.16 billion for the quarter ended March 31, 2016 and $1.10 billion for the quarter ended June 30, 2015.

"Our margin remains below optimal levels primarily as a result of low interest rates and excess liquidity," said O'Brien.  "However, we continue to patiently deploy liquidity, and as a result this is the fifth consecutive quarter in which we've increased net interest margin.  We are nearing our fully deployed margin estimate of 3.10%."

Non-Interest Income

Non-interest income was $3.8 million for the quarter ended June 30, 2016, as compared to $3.2 million and $4.9 million for the quarters ended March 31, 2016 and June 30, 2015, respectively.  The increase in non-interest income from the linked first quarter is due primarily to the gain on the sale of investment securities of $426 thousand recorded in the three months ended June 30, 2016. Revenues from Prosperis Financial Solutions, LLC, the Bank's securities brokerage subsidiary, were $538 thousand in the second quarter, increasing from $377 thousand in the first quarter.  The decrease in non-interest income from the comparable prior year quarter was primarily attributable to a $1.2 million gain on the sale of loans recorded in the three months ended June 30, 2015.

"Through 2016, we've seen a sustained increase in deposit-related income, and our Prosperis Financial Services business enjoyed a rebound in revenue for the second quarter," stated O'Brien.  "These revenue improvements further demonstrate that the Company's relationship banking strategy is taking hold in our network as customers are deepening their transactional behavior with the Bank."

Non-Interest Expense

Non-interest expense for the second quarter of 2016 was $17.1 million as compared to $16.5 million for the three months ended March 31, 2016 and $18.4 million for the three months ended June 30, 2015.  The increase in non-interest expense from the prior linked quarter is due to an increase of $270 thousand in salaries and benefits due to incentive compensation adjustments and an increase of $603 thousand in other expenses, including $250 thousand of SBA recourse reserves recorded in the three months ended June 30, 2016.  These increases were partly offset by a decrease in insurance expense of $232 thousand to $556 thousand in the second quarter as compared to the prior quarter as a result lower FDIC insurance assessments.  Non-interest expense for the second quarter of 2016 declined by $1.3 million from the second quarter of 2015, primarily due to a decline of $1.6 million in occupancy, equipment and data processing expenses as a result of the comprehensive restructuring plan completed in 2015, partly offset by an increase of $434 thousand in other expenses as well as lesser increases in problem loan expenses, advertising and salaries and employee benefits. 

"There are ongoing challenges in the banking environment.  We will continue to focus on the initiatives we can control, including expenses," said O'Brien.  In the second half of 2016, we expect to experience additional savings from expiring leases, anticipated reductions in insurance premiums and the sunset of other long-term contractual commitments." 

Asset Quality

Non-performing loans held-for-investment to total gross loans held-for-investment increased to 0.35% at June 30, 2016 as compared to 0.25% at March 31, 2016 due to one $2.2 million C&I loan relationship entering non-accrual status during the three months ended June 30, 2016.  Non-performing loans held-for-investment to total gross loans held-for-investment was 0.37% at June 30, 2015. 

There was negative provision for loan losses of $1.7 million recorded during the second quarter of 2016 compared to no provision for loan losses during the quarter ended March 31, 2016 and a negative provision for loan losses of $1.2 million in the second quarter of 2015.  The negative provision reflects the overall stability of the Bank's asset quality at significantly improved levels, despite the recent small increase in non-performing loans, which has resulted in continued improvement in the Bank's historical loss severity.  In the second quarter of 2016, the Bank recorded net charge-offs of $435 thousand as compared to net charge-offs of $56 thousand in the first quarter of 2016 and net recoveries of $615 thousand in the second quarter of 2015.  The Bank moved $1.0 million of classified consumer and residential loans to held-for-sale status during the quarter and recorded a charge-off of $467 thousand.  The Bank also entered into a Troubled Debt Restructure ("TDR") loan with a $2.2 million commercial relationship, recording a charge-off of $208 thousand and placing the loan into non-accrual status.  The loan was and remains current with respect to all payments. At maturity, the loan was renewed with a new amortization schedule which significantly shortened the duration and in doing so, classified the loan as a non-accrual TDR. 

The allowance for loan losses was $16.0 million, or 1.02% of gross loans held-for-investment at June 30, 2016 as compared to $18.0 million, or 1.14% of gross loans held-for-investment at March 31, 2016 and $20.3 million, or 1.29% of gross loans held-for-investment at June 30, 2015.  The allowance for loan losses was 289% of non-performing loans held-for-investment at June 30, 2016 as compared to 460% at March 31, 2016 and 347% at June 30, 2015.

"These results are a continued evidence of our proactive risk management stance," stated O'Brien.  "By identifying problem assets early, and quickly restructuring or selling problem loans, we have been able to sustain asset quality metrics that are among the best in our peer group."

Capital

Capital ratios improved further due to balance sheet reductions and internal capital generation through retained earnings.  At June 30, 2016, the Bank's Tier 1 common equity risk-based capital ratio, total risk-based capital ratio, Tier 1 risk-based capital ratio and leverage capital ratio were 18.1%, 19.1%, 18.1% and 13.3%, respectively.  At June 30, 2016, the Company's Tier 1 common equity risk-based capital ratio, total risk-based capital ratio, Tier 1 risk-based capital ratio and leverage capital ratio were 14.3%, 21.0%, 17.9%, and 13.2%, respectively.  The Company's tangible equity to tangible assets ratio was 10.5% at June 30, 2016, as compared to 10.4% at March 31, 2016 and 9.2% at June 30, 2015. 

The Company declared a quarterly cash dividend of $0.01 per share in the quarter, to be paid in the third quarter. 

"Given the continued strong capital position of the Company and modest payout, we will retain ample excess capital to support existing enterprise risk and future growth," said O'Brien.  "The commencement of a cash dividend represents a prudent deployment of capital and provides a current return to our shareholders."

Conference Call

The Company's management will hold a conference call on Tuesday, July 26, 2016 at 11:00 AM (EDT) to discuss results and answer questions from analysts and investors.  Participants may listen to or participate in the Company's earnings conference call via the following:

• Participants toll-free number: 888-389-5997
• Conference ID: 3696947

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

About Sun Bancorp, Inc.

Sun Bancorp, Inc. (NASDAQ: SNBC) is a $2.19 billion asset bank holding company headquartered in Mount Laurel, New Jersey. Its primary subsidiary is Sun National Bank, a community bank serving customers throughout New Jersey, and the metro New York region. Sun National Bank is an Equal Housing Lender and its deposits are insured up to the legal maximum by the FDIC. For more information about Sun National Bank and Sun Bancorp, Inc., visit www.sunnationalbank.com

Cautionary Note Regarding Forward-Looking Statements

The foregoing material contains forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, which may be identified by the use of such words as "allow," "anticipate," "believe," "continues," "could," "estimate," "expect," "intend," "may," "opportunity," "outlook," "plan," "potential," "predict," "project," "reflects," "should," "typically," "usually," "view," "will," "would," and similar terms and phrases, including references to assumptions.  Examples of forward-looking statements include, but are not limited to, estimates with respect to the financial condition, results of operations and business of the Company and the Bank, the banking industry, the economy in general, expectations of the business environment in which the Company operates, projections of future performance and other statements contained herein that are not historical facts.  These remarks are based upon current management expectations, and may, therefore, involve risks and uncertainties that cannot be predicted or quantified and are beyond the Company's control and are subject to a variety of uncertainties that could cause future results to vary materially from the Company's historical performance, or from current expectations.  Factors that could cause actual results to differ from those expressed or implied by such forward-looking statements include, but are not limited to: (i) the Company's ability to attract and retain key management and staff; (ii) changes in business strategy or an inability to successfully execute strategy due to the occurrence of unanticipated events; (iii) the ability to attract deposits and other sources of liquidity; (iv) changes in the financial performance and/or condition of the Bank's borrowers; (v) changes in consumer spending, borrowing and saving habits; (vi) the ability to increase market share and control expenses; (vii) changes in estimates of future loan loss reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements; (viii) local, regional and national economic conditions and events and the impact they may have on the Company and its customers; (ix) volatility in the credit and equity markets and its effect on the general economy; (x) the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs; (xi) the overall quality of the composition of the Company's loan and securities portfolios; (xii) inflation, interest rate, securities market and monetary fluctuations;(xiii) legislative and regulatory changes, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and the implementing regulations, changes in banking, securities and tax laws and regulations and their application by regulators and changes in the scope and cost of the Federal Deposit Insurance Corporation insurance and other coverages; (xiv) the effects of, and changes in, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; (xv) competition among providers of financial services; (xvi) other economic, competitive, governmental, regulatory and technological factors affecting our operations, pricing, products and services and the other risks detailed under the headings "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Form 10-K for the fiscal year ended December 31, 2015 and in other filings made pursuant to the Securities Exchange Act of 1934, as amended.  No undue reliance should be placed on any forward-looking statements.  The Company does not undertake, and specifically disclaims, any obligation to publicly release the results of any revisions that may be made to any such forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

Non-GAAP Financial Measures (Unaudited)

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

Tangible book value per common share (dollars in thousands)

The following reconciles shareholders' equity to tangible equity by reducing shareholders' equity by the intangible asset balance at June 30, 2016, March 31, 2016, December 31, 2015, September 30, 2015 and June 30, 2015.

Return on Average Tangible Equity (dollars in thousands)

The following provides the calculation of return on tangible equity for the three months ended June 30, 2016, March 31, 2016, December 31, 2015, September 30, 2015 and June 30, 2015.

 

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SOURCE Sun Bancorp, Inc.

Related Links

http://www.sunnationalbank.com