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

News provided by

Jul 26, 2016, 09:00 ET

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.

	June 30, 2016		March 31, 2016		December 31, 2015		September 30, 2015		June 30, 2015
Tangible book value per common share:
Shareholders' equity	$	264,172	$	259,457	$	256,389	$	255,485	$	252,926
Less: Intangible assets		38,188		38,188		38,188		38,188		38,188
Tangible equity	$	225,984	$	221,269	$	218,201	$	217,297	$	214,738
Common stock		19,026		18,959		18,907		18,901		18,901
Less: Treasury stock		172		176		218		231		237
Total outstanding shares		18,854		18,783		18,689		18,670		18,664
Tangible book value per common share:	$	11.99	$	11.78	$	11.68	$	11.64	$	11.51

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.

	Three Months Ended
	June 30, 2016			March 31, 2016			December 31, 2015			September 31, 2015			June 30, 2015
Net income	$	2,963		$	826		$	1,452		$	3,164		$	2,828
Average tangible equity:
Average shareholders' equity	$	262,517		$	259,353		$	257,035		$	255,685		$	252,391
Less: Average intangible assets		38,188			38,188			38,188			38,188			38,188
Average tangible equity	$	224,329		$	221,165		$	218,847		$	217,497		$	214,203
Return on average tangible equity⁽¹⁾:		5.3	%		1.5	%		2.7	%		5.8	%		5.3	%


⁽¹⁾Annualized

SUN BANCORP, INC AND SUBSIDIARIES FINANCIAL HIGHLIGHTS(Unaudited) (Dollars in thousands, except share and per share amounts)

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Profitability for the period:
Net interest income	$	14,872		$	15,375		$	29,358		$	30,549
Provision for (recovery of) loan losses		(1,682)			(1,218)			(1,682)			(1,218)
Non-interest income		3,774			4,879			6,936			17,966
Non-interest expense		17,066			18,363			33,590			43,581
Income before income taxes		3,262			3,109			4,386			6,169
Income tax expense		299			284			598			568
Net income available to common shareholders	$	2,963		$	2,825		$	3,788		$	5,601
Financial ratios:
Return on average assets ⁽¹⁾		0.5	%		0.5	%		0.2	%		0.4	%
Return on average equity ⁽¹⁾		4.5	%		4.5	%		5.8	%		4.5	%
Return on average tangible equity ^{(1), (2)}		5.3	%		5.3	%		6.8	%		5.3	%
Net interest margin ⁽¹⁾		2.98	%		2.79	%		2.94	%		2.68	%
Efficiency ratio		92	%		90	%		93	%		90	%
Income per common share:
Basic	$	0.16		$	0.15		$	0.20		$	0.30
Diluted	$	0.16		$	0.15		$	0.20		$	0.30

Average equity to average assets		12.0	%		10.4	%		12.0	%		10.0	%

	June 30,						December 31,
	2016			2015				2015
At period-end:
Total assets	$	2,186,982		$	2,379,023		$	2,210,584
Total deposits		1,713,665			1,876,721			1,746,102
Loans receivable, net of allowance for loan losses		1,548,593			1,558,599			1,530,501
Loans held-for-sale		540			2,006			—
Investments		296,714			353,245			298,858
Borrowings		92,011			92,578			92,305
Junior subordinated debentures		92,786			92,786			92,786
Shareholders' equity		264,172			252,926			256,388

Credit quality and capital ratios:
Allowance for loan losses to gross loans held-for-investment		1.02	%		1.29	%		1.16	%
Non-performing loans held-for-investment to gross loans held-for-investment		0.35	%		0.37	%		0.20	%
Non-performing assets to gross loans held-for-investment, loans held-for-sale and real estate owned		0.38	%		0.40	%		0.22	%
Allowance for loan losses to non-performing loans held-for-investment		289	%		347	%		578	%
Tier 1 common equity risk-based capital:
Sun Bancorp, Inc.		14.3	%		13.8	%		14.1	%
Sun National Bank		18.1	%		17.5	%		17.9	%
Total risk-based capital:
Sun Bancorp, Inc.		21.0	%		20.8	%		21.0	%
Sun National Bank		19.1	%		18.8	%		19.1	%
Tier 1 risk-based capital:
Sun Bancorp, Inc.		17.9	%		17.2	%		17.6	%
Sun National Bank		18.1	%		17.5	%		17.9	%
Leverage capital:
Sun Bancorp, Inc.		13.2	%		11.3	%		12.2	%
Sun National Bank		13.3	%		11.5	%		12.4	%

Book value per common share	$	14.01		$	13.55		$	13.72
Tangible book value per common share	$	11.99		$	11.51		$	11.68


(1)	Annualized.
(2)	Return on average tangible equity, a non-GAAP measure, is computed by dividing annualized net income for the period by average tangible equity. Average tangible equity equals average equity less average identifiable intangible assets and goodwill.

SUN BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited) (Dollars in thousands, except share and per share amounts)

	June 30,		December 31,
	2016		2015
ASSETS
Cash and due from banks	$	27,603	$	21,836
Interest earning bank balances		141,196		182,479
Cash and cash equivalents		168,799		204,315
Restricted cash		5,000		5,000
Investment securities available for sale (amortized cost of $280,642 and $285,838 at June 30, 2016 and December 31, 2015, respectively)		280,683		282,875
Investment securities held to maturity (estimated fair value of $250 and $250 at June 30, 2016 and December 31, 2015, respectively)		250		250
Loans receivable (net of allowance for loan losses of $15,891 and $18,008 at June 30, 2016 and December 31, 2015, respectively)		1,548,593		1,530,501
Loans held-for-sale, at lower of cost or market		540		—
Restricted equity investments, at cost		15,781		15,733
Bank properties and equipment, net		30,731		31,596
Real estate owned, net		—		281
Accrued interest receivable		4,824		4,657
Goodwill		38,188		38,188
Bank owned life insurance (BOLI)		82,172		81,175
Other assets		11,421		16,013
Total assets	$	2,186,982	$	2,210,584
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits	$	1,713,665	$	1,746,102
Advances from the Federal Home Loan Bank of New York (FHLBNY)		85,513		85,607
Obligations under capital lease		6,498		6,698
Junior subordinated debentures		92,786		92,786
Deferred taxes, net		3,311		1,524
Other liabilities		21,037		21,479
Total liabilities		1,922,810		1,954,196

Commitments and contingencies

Shareholders' equity:
Preferred stock, $1 par value, 1,000,000 shares authorized; none issued		—		—
Common stock, $5 par value, 40,000,000 shares authorized; 19,026,491 shares issued and 18,854,374 shares outstanding at June 30, 2016; 18,910,829 shares issued and 18,693,091 shares outstanding at December 31, 2015.		95,132		94,554
Additional paid-in capital		510,159		510,659
Retained deficit		(333,754)		(337,542)
Accumulated other comprehensive loss		24		(1,752)
Deferred compensation plan trust		(876)		(1,122)
Treasury stock at cost, 172,117 shares at June 30, 2016 and 217,738 shares at December 31, 2015.		(6,513)		(8,409)
Total shareholders' equity		264,172		256,388
Total liabilities and shareholders' equity	$	2,186,982	$	2,210,584

SUN BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Dollars in thousands, except share and per share amounts)

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
INTEREST INCOME:
Interest and fees on loans	$	15,666	$	15,451	$	30,697	$	30,549
Interest on taxable investment securities		1,618		1,831		3,298		3,877
Interest on non-taxable investment securities		—		309		—		615
Dividends on restricted equity investments		214		202		437		411
Total interest income		17,498		17,793		34,432		35,452
INTEREST EXPENSE:
Interest on deposits		1,456		1,337		2,748		2,843
Interest on funds borrowed		542		536		1,086		966
Interest on junior subordinated debentures		628		545		1,240		1,077
Total interest expense		2,626		2,418		5,074		4,886
Net interest income		14,872		15,375		29,358		30,566
PROVISION FOR LOAN LOSSES		(1,682)		(1,218)		(1,682)		(1,218)
Net interest income after provision for loan losses		16,554		16,593		31,040		31,784
NON-INTEREST INCOME:
Deposit service charges and fees		1,618		1,849		3,198		3,853
Interchange fees		486		554		970		1,098
Gain on sale of bank branches		—		—		—		9,235
Gain on sale of loans		—		1,226		—		1,239
Gain on sale of investment securities		426		—		426		—
Investment products income		538		488		914		1,077
BOLI income		489		503		997		1,015
Other income		217		259		431		449
Total non-interest income		3,774		4,879		6,936		17,966
NON-INTEREST EXPENSE:
Salaries and employee benefits		9,333		9,120		18,396		19,710
Occupancy expense		2,144		3,034		4,482		8,001
Equipment expense		1,068		1,500		2,159		5,014
Data processing expense		1,075		1,304		2,263		2,612
Professional fees		537		711		1,008		1,547
Insurance expense		556		1,094		1,344		2,341
Advertising expense		393		223		775		458
Problem loan expense		187		38		220		1,026
Other expense		1,773		1,339		2,943		2,872
Total non-interest expense		17,066		18,363		33,590		43,581
INCOME BEFORE INCOME TAXES		3,262		3,109		4,386		6,169
INCOME TAX EXPENSE		299		284		598		568
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS	$	2,963	$	2,825	$	3,788	$	5,601

Basic earnings per share	$	0.16	$	0.15	$	0.20	$	0.30
Diluted earnings per share	$	0.16	$	0.15	$	0.20	$	0.30

Weighted average shares - basic		18,848,236		18,632,526		18,793,987		18,624,585
Weighted average shares - diluted		18,957,201		18,684,597		18,889,561		18,663,721

SUN BANCORP, INC. AND SUBSIDIARIES HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited) (dollars in thousands)

	2016			2016			2015			2015			2015
	Q2			Q1			Q4			Q3			Q2
Profitability for the quarter:
Net interest income	$	14,872		$	14,486		$	14,815		$	15,217		$	15,375
Provision for loan losses		(1,682)			-			(300)			(1,762)			(1,218)
Non-interest income		3,774			3,164			3,204			6,453			4,881
Non-interest expense		17,066			16,524			16,621			19,885			18,362
Income before income taxes		3,262			1,126			1,698			3,547			3,112
Income tax expense		299			300			246			383			284
Net income available to common shareholders	$	2,963		$	826		$	1,452		$	3,164		$	2,828
Financial ratios:
Return on average assets ⁽¹⁾		0.5	%		0.2	%		0.3	%		0.5	%		0.5	%
Return on average equity ⁽¹⁾		4.5	%		1.3	%		2.3	%		4.9	%		4.5	%
Return on average tangible equity ^{(1), (2)}		5.3	%		1.5	%		2.7	%		5.8	%		5.3	%
Net interest margin ⁽¹⁾		2.98	%		2.91	%		2.81	%		2.81	%		2.79	%
Efficiency ratio		93	%		94	%		92	%		91	%		90	%
Per share data :
Income per common share:
Basic	$	0.16		$	0.04		$	0.08		$	0.17		$	0.15
Diluted	$	0.16		$	0.04		$	0.08		$	0.17		$	0.15
Book value	$	14.01		$	13.81		$	13.72		$	13.68		$	13.55
Tangible book value	$	11.99		$	11.78		$	11.68		$	11.64		$	11.51
Average basic shares		18,848,236			18,739,739			18,674,622			18,668,791			18,632,526
Average diluted shares		18,957,201			18,837,699			18,768,931			18,738,517			18,684,597
Non-interest income:
Deposit service charges and fees	$	1,618		$	1,580		$	1,424		$	1,711		$	1,849
Interchange fees		486			484			505			512			554
Gain on sale of investment securities		426			—			—			1,466			2
Gain on sale of loans		—			—			—			205			1,226
Net gain on sale of bank branches		—			—			—			1,318			—
Investment products income		538			377			458			490			488
BOLI income		489			508			516			512			503
Other income		217			215			301			237			259
Total non-interest income	$	3,774		$	3,164		$	3,204		$	6,453		$	4,881
Non-interest expense:
Salaries and employee benefits	$	9,333		$	9,063		$	7,814		$	9,489		$	9,120
Occupancy expense		2,144			2,339			1,521			3,289			3,034
Equipment expense		1,068			1,090			1,395			2,008			1,500
Data processing expense		1,075			1,188			1,209			1,197			1,304
Professional fees		537			471			845			838			711
Insurance expense		556			788			1,049			1,138			1,094
Advertising expense		393			382			541			521			223
Problem loan expenses		187			33			167			66			38
Other expenses		1,773			1,170			2,080			1,339			1,338
Total non-interest expense	$	17,066		$	16,524		$	16,621		$	19,885		$	18,362


(1)	Annualized.
(2)	Return on average tangible equity, a non-GAAP measure, is computed by dividing annualized net income for the period by average tangible equity. Average tangible equity equals average equity less average identifiable intangible assets and goodwill.

SUN BANCORP, INC. AND SUBSIDIARIES HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA(Unaudited) (dollars in thousands)

	2016		2016		2015		2015		2015
	Q2		Q1		Q4		Q3		Q2
Balance Sheet at quarter end:
Cash and cash equivalents	$	168,799	$	136,238	$	204,315	$	287,863	$	278,863
Restricted cash		5,000		5,000		5,000		5,000		5,000
Investment securities		296,714		298,656		298,858		313,216		353,245
Loans held-for-investment
Commercial and industrial		220,609		222,828		230,681		218,767		264,344
Commercial real estate - owner occupied		225,520		218,598		228,191		229,478		232,794
Commercial real estate - non-owner occupied		666,345		667,401		625,700		607,375		601,200
Land and development		82,018		86,520		68,070		63,468		57,351
Residential real estate		237,080		241,891		249,975		257,678		265,992
Home equity and other		132,912		140,660		145,892		151,415		157,249
Total loans		1,564,484		1,577,898		1,548,509		1,528,181		1,578,930
Allowance for loan losses		(15,891)		(17,952)		(18,008)		(18,913)		(20,331)
Net loans held-for-investment		1,548,593		1,559,946		1,530,501		1,509,268		1,558,599
Loans held-for-sale		540		—		—		—		2,006
Branch assets held-for-sale		—		—		—		—		5,604
Goodwill		38,188		38,188		38,188		38,188		38,188
Total assets		2,186,982		2,169,750		2,210,584		2,289,023		2,379,023
Net deferred tax asset, before valuation allowance		125,051		126,744		129,129		129,063		129,597
Deferred tax valuation allowance		(128,362)		(129,248)		(130,653)		(130,837)		(131,872)
Total deposits		1,713,665		1,703,902		1,746,102		1,819,532		1,876,721
Branch deposits held-for-sale		—		—		—		—		34,689
Securities repurchase agreements- customers		—		—		—		—		—
Advances from the FHLBNY		85,513		85,560		85,607		85,653		85,698
Obligations under capital leases		6,498		6,599		6,698		6,795		6,880
Junior subordinated debentures		92,786		92,786		92,786		92,786		92,786
Total shareholders' equity		264,172		259,457		256,388		255,485		252,926

Quarterly average balance sheet:
Loans held-for-investment
Commercial	$	1,197,368	$	1,159,715	$	1,124,176	$	1,147,236	$	1,095,202
Residential real estate		240,884		247,489		255,746		264,396		271,585
Home equity and other		136,330		141,851		146,806		154,124		163,820
Total loans		1,574,582		1,549,055		1,526,728		1,565,756		1,530,607
Securities and other interest-earning assets		422,667		443,303		583,541		619,430		699,687
Total interest-earning assets		1,997,249		1,992,358		2,110,269		2,185,186		2,230,294
Total assets		2,179,403		2,175,796		2,293,114		2,372,728		2,419,522
Non-interest-bearing demand deposits		393,922		417,469		534,551		550,689		521,563
Total deposits		1,707,574		1,709,820		1,826,704		1,904,398		1,956,592
Total interest-bearing liabilities		1,498,510		1,477,356		1,477,301		1,538,998		1,617,176
Total shareholders' equity		262,517		259,353		257,035		255,685		252,391

SUN BANCORP, INC. AND SUBSIDIARIES HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited) (dollars in thousands)

	2016			2016			2015			2015			2015
	Q2			Q1			Q4			Q3			Q2

Capital and credit quality measures:
Tier 1 common equity risk-based capital ⁽¹⁾:
Sun Bancorp, Inc.		14.3	%		14.0	%		14.1	%		14.6	%		13.8	%
Sun National Bank		18.1	%		17.7	%		17.9	%		18.5	%		17.5	%
Total risk-based capital ⁽¹⁾:
Sun Bancorp, Inc.		21.0	%		20.8	%		21.0	%		21.8	%		20.8	%
Sun National Bank		19.1	%		18.9	%		19.1	%		19.7	%		18.8	%
Tier 1 risk-based capital ⁽¹⁾:
Sun Bancorp, Inc.		17.9	%		17.4	%		17.6	%		18.2	%		17.2	%
Sun National Bank		18.1	%		17.7	%		17.9	%		18.5	%		17.5	%
Leverage capital ⁽¹⁾:
Sun Bancorp, Inc.		13.2	%		13.0	%		12.2	%		11.7	%		11.3	%
Sun National Bank		13.3	%		13.2	%		12.4	%		11.9	%		11.5	%


Average equity to average assets		12.0	%		11.9	%		11.2	%		10.8	%		10.4	%
Allowance for loan losses to gross loans held-for-investment		1.02	%		1.14	%		1.16	%		1.24	%		1.29	%
Non-performing loans held-for-investment to gross loans held-for-investment		0.35	%		0.25	%		0.20	%		0.24	%		0.37	%
Non-performing assets to gross loans held-for-investment, loans held-for-sale and real estate owned		0.38	%		0.25	%		0.22	%		0.30	%		0.40	%
Allowance for loan losses to non-performing loans held-for-investment		289	%		460	%		578	%		517	%		347	%
Other data:
Net (charge-offs) recoveries		(435)			(56)			(605)			344			615
Classified loans		9,310			7,812			5,922			5,803			9,236
Classified assets		12,516			11,018			9,410			9,918			12,442
Non-performing assets:
Non-accrual loans		2,580			3,066			2,207			3,121			5,156
Non-accrual loans held-for-sale		332			—			—			—			389
Troubled debt restructurings, non-accrual		2,918			838			910			534			702
Real estate owned, net		—			—			281			909			—
Total non-performing assets	$	5,830		$	3,904		$	3,398		$	4,564		$	6,247

SUN BANCORP, INC. AND SUBSIDIARIES AVERAGE BALANCE SHEETS (Unaudited) (dollars in thousands)

	For the Three Months Ended							For the Three Months Ended
	June 30, 2016							June 30, 2015
	Average				Average			Average				Average
	Balance		Interest		Yield/Cost			Balance		Interest		Yield/Cost
Interest-earning assets:
Loans receivable^{(1), (2)}
Commercial	$	1,197,368	$	12,141		4.06	%	$	1,095,202	$	11,285		4.12	%
Home equity and other		136,330		1,431		4.20			163,820		1,723		4.21
Residential real estate		240,884		2,094		3.48			271,585		2,443		3.60
Total loans receivable		1,574,582		15,666		3.98			1,530,607		15,451		4.04
Investment securities ⁽³⁾		296,811		1,673		2.25			370,469		2,300		2.48
Interest-earning bank balances		125,856		159		0.51			329,218		208		0.25
Total interest-earning assets		1,997,249		17,498		3.50			2,230,294		17,959		3.22

Total non-interest-earning assets		182,151							189,228
Total assets	$	2,179,400						$	2,419,522
Interest-bearing liabilities:
Interest-bearing deposit accounts:
Interest-bearing demand deposit	$	700,857		382		0.22	%	$	793,954		345		0.17	%
Savings deposits		239,079		192		0.32			222,372		108		0.19
Time deposits		373,716		882		0.94			418,703		884		0.84
Total interest-bearing deposit accounts		1,313,652		1,456		0.44			1,435,029		1,337		0.37
Short-term borrowings:
Repurchase agreements with customers		—		—		—			29		—		—
Long-term borrowings:
FHLBNY Advances		85,529		430		2.01			82,416		418		2.03
Obligations under capital lease		6,543		112		6.85			6,916		118		6.82
Junior subordinated debentures		92,786		628		2.71			92,786		545		2.35
Total borrowings		184,858		1,170		2.53			182,147		1,081		2.37
Total interest-bearing liabilities		1,498,510		2,626		0.70			1,617,176		2,418		0.60
Non-interest-bearing liabilities:
Non-interest-bearing demand deposits		393,922							521,563
Other liabilities		24,451							28,392
Total non-interest-bearing liabilities		418,373							549,955
Total liabilities		1,916,883							2,167,131

Shareholders' equity		262,517							252,391
Total liabilities and shareholders' equity	$	2,179,400						$	2,419,522
Net interest income			$	14,872						$	15,541
Interest rate spread ⁽⁴⁾						2.80	%						2.62	%
Net interest margin ⁽⁵⁾						2.98	%						2.79	%
Ratio of average interest-earning assets to average interest-bearing liabilities						133	%						138	%


(1)	Average balances include non-accrual loans and loans held-for-sale.
(2)	Loan fees are included in interest income and the amount is not material for this analysis.
(3)	Interest earned on non-taxable investment securities is shown on a tax equivalent basis assuming a 35% marginal federal tax rate for all periods. The fully taxable equivalent adjustment for the three months ended June 30, 2016 and 2015 was $0 and $164 thousand, respectively.
(4)	Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(5)	Net interest margin represents net interest income as a percentage of average interest-earning assets.

SUN BANCORP, INC. AND SUBSIDIARIES AVERAGE BALANCE SHEETS (Unaudited) (dollars in thousands)

	For the Six Months Ended							For the Six Months Ended
	June 30, 2016							June 30, 2015
	Average				Average			Average				Average
	Balance		Interest		Yield/Cost			Balance		Interest		Yield/Cost
Interest-earning assets:
Loans receivable (1), (2)
Commercial and industrial	$	1,178,645	$	23,570		4.00	%	$	1,073,526	$	22,089		4.12	%
Home equity		139,074		2,928		4.21			175,339		3,617		4.13
Residential real estate		244,168		4,199		3.44			277,856		4,842		3.49
Total loans receivable		1,561,887		30,697		3.93			1,526,721		30,548		4.00
Investment securities (3)		295,963		3,390		2.29			381,494		4,729		2.48
Interest-earning bank balances		136,965		345		0.50			401,702		505		0.25
Total interest-earning assets		1,994,815		34,432		3.45			2,309,917		35,782		3.10

Total non-interest-earning assets		182,792							199,460
Total assets	$	2,177,607						$	2,509,377
Interest-bearing liabilities:
Interest-bearing deposit accounts:
Interest-bearing demand deposits	$	706,214		741		0.21	%	$	844,124	$	751		0.18	%
Savings deposits		234,102		361		0.31			230,865		235		0.20
Time deposits		362,744		1,646		0.91			443,238		1,857		0.84
Total interest-bearing deposit accounts		1,303,060		2,748		0.42			1,518,227		2,843		0.37
Short-term borrowings:
Repurchase agreements with customers		—		—		—			101		—		—
Long-term borrowings
FHLBNY advances		85,553		860		2.01			71,647		728		2.03
Obligations under capital lease		6,592		226		6.86			6,955		238		6.84
Junior subordinated debentures		92,786		1,240		2.67			92,786		1,077		2.32
Total borrowings		184,931		2,326		2.52			171,489		2,043		2.38
Total interest-bearing liabilities		1,487,991		5,074		0.68			1,689,716		4,886		0.58
Non-interest-bearing liabilities:
Non-interest-bearing demand deposits		405,630							540,572
Other liabilities		23,042							27,902
Total non-interest-bearing liabilities		428,672							568,474
Total liabilities		1,916,663							2,258,190

Shareholders' equity		260,944							251,187
Total liabilities and shareholders' equity	$	2,177,607						$	2,509,377
Net interest income			$	29,358						$	30,896
Interest rate spread (4)						2.77	%						2.52	%
Net interest margin (5)						2.94	%						2.68	%
Ratio of average interest-earning assets to average interest-bearing liabilities						134	%						137	%


(1)	Average balances include non-accrual loans and loans held-for-sale.
(2)	Loan fees are included in interest income and the amount is not material for this analysis.
(3)	Interest earned on non-taxable investment securities is shown on a tax equivalent basis assuming a 35% marginal federal tax rate for all periods. The fully taxable equivalent adjustment for the six months ended June 30, 2016 and 2015 was $0 and $164 thousand, respectively.
(4)	Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(5)	Net interest margin represents net interest income as a percentage of average interest-earning assets.

SUN BANCORP, INC. AND SUBSIDIARIES AVERAGE BALANCE SHEETS (Unaudited) (dollars in thousands)

	For the Three Months Ended							For the Three Months Ended
	June 30, 2016							March 31, 2016
	Average				Average			Average				Average
	Balance		Interest		Yield/Cost			Balance		Interest		Yield/Cost
Interest-earning assets:
Loans receivable ^{(1), (2)}
Commercial	$	1,197,368	$	12,141		4.06	%	$	1,159,715	$	11,429		3.94	%
Home equity and other		136,330		1,431		4.20			141,851		1,497		4.22
Residential real estate		240,884		2,094		3.48			247,489		2,105		3.40
Total loans receivable		1,574,582		15,666		3.98			1,549,055		15,031		3.88
Investment securities ⁽³⁾		296,811		1,673		2.25			295,105		1,717		2.33
Interest-earning bank balances		125,856		159		0.51			148,198		187		0.50
Total interest-earning assets		1,997,249		17,498		3.50			1,992,358		16,935		3.40

Total non-interest-earning assets		182,151							183,438
Total assets	$	2,179,400						$	2,175,796
Interest-bearing liabilities:
Interest-bearing deposit accounts:
Interest-bearing demand deposits	$	700,857		382		0.22	%	$	711,631	$	359		0.20	%
Savings deposits		239,079		192		0.32			229,070		169		0.30
Time deposits		373,716		882		0.94			351,650		764		0.87
Total interest-bearing deposit accounts		1,313,652		1,456		0.44			1,292,351		1,292		0.40
Short-term borrowings:
Long-term borrowings
FHLB advances		85,529		430		2.01			85,576		431		2.01
Obligations under capital lease		6,543		112		6.85			6,643		114		6.86
Junior subordinated debentures		92,786		628		2.71			92,786		612		2.64
Total borrowings		184,858		1,170		2.53			185,005		1,157		2.50
Total interest-bearing liabilities		1,498,510		2,626		0.70			1,477,356		2,449		0.66
Non-interest-bearing liabilities:
Non-interest-bearing demand deposits		393,922							417,469
Other liabilities		24,451							21,618
Total non-interest-bearing liabilities		418,373							439,087
Total liabilities		1,916,883							1,916,443

Shareholders' equity		262,517							259,353
Total liabilities and shareholders' equity	$	2,179,400						$	2,175,796
Net interest income			$	14,872						$	14,486
Interest rate spread ⁽⁴⁾						2.80	%						2.74	%
Net interest margin ⁽⁵⁾						2.98	%						2.91	%
Ratio of average interest-earning assets to average interest-bearing liabilities						133	%						135	%


(1)	Average balances include non-accrual loans and loans held-for-sale.
(2)	Loan fees are included in interest income and the amount is not material for this analysis.
(3)	Interest earned on non-taxable investment securities is shown on a tax equivalent basis assuming a 35% marginal federal tax rate for all periods. There was no fully taxable equivalent adjustment for the three months ended June 30, 2016 and December 31, 2015.
(4)	Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(5)	Net interest margin represents net interest income as a percentage of average interest-earning assets.