Sun Bancorp, Inc. Reports First Quarter 2012 Results

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Apr 24, 2012, 08:15 ET

VINELAND, N.J., April 24, 2012 /PRNewswire/ -- Sun Bancorp, Inc. (NASDAQ: SNBC) reported today a net loss available to common shareholders of $28.1 million, or a loss of $0.34 per diluted share, for the first quarter ended March 31, 2012, compared to a net loss available to common shareholders of $67.1 million, or a loss of $1.25 per diluted share, for the first quarter of 2011. The 2011 period included a $53.1 million net loss on loans transferred to held-for-sale.

The following are key items and events that occurred during the first quarter:

Provision expense totaled $30.7 million as compared to $6.8 million in the fourth quarter of 2011. The allowance for loan losses equaled $52.1 million at quarter end, an increase of $10.5 million from December 31, 2011. The allowance for loan losses equaled 2.34% of gross loans held for investment and 45.5% of non-performing loans.
The net interest margin equaled 3.48% versus 3.54% in the linked quarter. Non-accrual interest reversals totaled $310 thousand in the first quarter which reduced the net interest margin by five basis points. Commercial loan production remained relatively strong at $65 million during the first quarter versus $40 million in the comparable prior year quarter.
Non-interest income decreased $1.3 million to $5.5 million as compared to the linked quarter primarily due to a prior quarter bank-owned life insurance distribution of $765 thousand and prior quarter gains of $280 thousand on the sale of investment securities.
Non-interest expense increased $338 thousand from the linked quarter to $27.6 million; however, the current quarter included approximately $1.0 million in costs associated with the build out of our mortgage operations. During the first quarter, 47 new mortgage employees were hired as the Company plans to enhance its residential mortgage platform and provide a significant boost to non-interest income.
Total risk-based capital equaled 14.45% at March 31, 2012, well above the regulatory required level.
The Company announced the consolidation of three retail branches to occur in the second quarter. This strategic decision provides cost efficiencies and enhances the Company's ability to streamline operations in the branch network while continuing to provide excellent customer service.

"We continued in this quarter to take proactive and appropriate actions to strengthen and grow the company. We were decisive in charging down the balance of previously identified, collateral dependent legacy real estate loans in our portfolio that we believe have lost value due to the devalued commercial real-estate market and increasing our reserve coverage ratios," said Thomas X. Geisel, Sun's President and Chief Executive Officer. "We were equally decisive in capitalizing on market opportunities to build our mortgage business and drive loan production in both our small business and commercial lending lines. We remain focused on making decisions that reinforce the strength of our portfolio, build our revenue stream and effectively serve customers while advancing the Sun brand."

Discussion of Results:

Balance Sheet

Total assets were $3.11 billion at March 31, 2012, as compared to $3.18 billion at December 31, 2011 and $3.33 billion at March 31, 2011.
Gross loans held-for-investment were $2.23 billion at March 31, 2012, as compared to $2.29 billion at December 31, 2011 and $2.27 billion at March 31, 2011. Compared to the linked quarter, loans held-for-investment decreased by $65.6 million due to paydowns and net charge-offs of $20.2 million in the first quarter.
Loans held-for-sale increased $1.8 million from the linked quarter-end to $25.0 million at March 31, 2012.
Shareholders' equity decreased $25.9 million to $283.2 million at March 31, 2012 as compared to the linked quarter-end.

Net Interest Income and Margin

On a tax equivalent basis, net interest income decreased $1.1 million over the linked quarter to $24.9 million. The average yield on interest-earning assets decreased eight basis points over the linked quarter from 4.23% to 4.15%. The average cost of interest-bearing liabilities decreased five basis points to 0.84%. The net interest margin declined six basis points to 3.48% from 3.54% for the linked quarter and increased 22 basis points as compared to the same prior year quarter.

Non-Interest Income

Non-interest income was $5.5 million for the quarter ended March 31, 2012, a decrease of $1.3 million from the linked quarter of $6.8 million and $9.6 million above the comparable prior year quarter loss of $4.1 million. The decrease from the linked quarter was primarily attributable to a bank-owned life insurance distribution of $765 thousand and gains on the sale of investment securities of $280 thousand, both of which were recorded in the linked quarter.

Non-Interest Expense

The Company incurred $27.6 million of non-interest expense in the first quarter of 2012, an increase of $338 thousand over the linked quarter and a decrease of $219 thousand from the comparable prior year quarter. Higher salary costs from the addition of new mortgage personnel were partially offset by lower occupancy, problem loan and advertising expenses. It is anticipated that the upfront costs associated with the build out of the mortgage operations will begin to be offset in the second quarter when the revenues are realized upon the sale of the first quarter mortgage production.

Asset Quality

The provision for loan losses for the first quarter was $30.7 million, as compared to $6.8 million in the linked quarter and $60.3 million in the comparable prior year quarter. The allowance for loan losses was $52.1 million at March 31, 2012, or 2.34% of gross loans held-for-investment, as compared to the allowance for loan losses to gross loans held-for-investment of 1.82% at December 31, 2011 and 2.58% at March 31, 2011. Net charge-offs recorded in the current quarter were $20.2 million, or 0.89% of average loans, as compared to $20.4 million, or 0.87% of average loans for the linked quarter and $83.5 million, or 3.35% of average loans outstanding for the comparable prior year quarter. The prior year quarter included charge-offs of $69.4 million related to the fair value adjustment on loans transferred to held-for-sale.
Total non-performing assets were $118.8 million, or 5.27% of total gross loans held-for-investment, loans held-for-sale and real estate owned at March 31, 2012, as compared to $112.7 million, or 4.86% and $192.3 million, or 8.04%, respectively, at December 31, 2011 and March 31, 2011. Non-performing loans increased $6.9 million over the linked quarter to $114.6 million at March 31, 2012 from $107.7 million at December 31, 2011 and decreased $73.2 million from $187.8 million at March 31, 2011.

Capital

Stockholders' equity totaled $283.2 million at March 31, 2012 compared to $309.1 million at December 31, 2011. The Company's tangible equity to tangible assets ratio was 7.79% at March 31, 2012, as compared to 8.41% at December 31, 2011 and 7.27% at March 31, 2011. At March 31, 2012, the Company's total risk-based capital ratio, Tier 1 capital ratio and leverage capital ratio were approximately 14.45%, 12.82%, and 10.21%, respectively. At March 31, 2012, Sun National Bank's total risk-based capital ratio, Tier 1 capital ratio and leverage capital ratio were approximately 13.73%, 12.47%, and 9.93%, respectively.

The Company will hold its regularly scheduled conference call on Wednesday, April 25, 2012, at 11:00 a.m. (ET). Participants may listen to the live web cast through the Sun Bancorp, Inc. web site at www.sunnb.com. Participants are advised to log on 10 minutes ahead of the scheduled start of the call. An Internet-based replay will be available at the Web site for two weeks following the call.

Sun Bancorp, Inc. (Nasdaq: SNBC) is a $3.11 billion asset bank holding company headquartered in Vineland, New Jersey, with its executive offices located in Mt. Laurel, New Jersey. Its primary subsidiary is Sun National Bank, a full service Commercial Bank serving customers through 68 locations in New Jersey. Sun National Bank has been named one of Forbes Magazine's "Most Trustworthy Companies" for five years running. The Bank is an Equal Housing Lender and its deposits are insured up to the legal maximum by the Federal Deposit Insurance Corporation (FDIC). For more information about Sun National Bank and Sun Bancorp, Inc., visit www.sunnb.com.

The foregoing material contains forward-looking statements concerning the financial condition, results of operations and business of the Company. We caution that such statements are subject to a number of uncertainties and actual results could differ materially, and, therefore, readers should not place undue reliance on any forward-looking statements. The Company does not undertake, and specifically disclaims, any obligation to publicly release the results of any revisions that may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

Non-GAAP Financial Measures

This release references tax-equivalent interest income and non-operating income and expenses. Tax-equivalent interest income is a non-GAAP financial measure. Tax-equivalent interest income assumes a 35% marginal federal tax rate for all periods. The fully taxable equivalent adjustments for the three months ended March 31, 2012, December 31, 2011 and March 31, 2011 were $233 thousand, $271 thousand and $409 thousand, respectively. Non-operating income (loss) is also a non-GAAP financial measure. Non-operating income (loss) includes impairment losses recognized on available for sale securities included in earnings. There were no non-operating income (loss) items for the three months ended March 31, 2012, December 31, 2011, September 30, 2011 and June 30, 2011. Non-operating loss during the three months ended March 31, 2011 was $250 thousand.

SUN BANCORP, INC. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS (Unaudited)
(Dollars in thousands, except per share amounts)
	For the Three Months Ended
	March 31,								December 31,
		2012			2011				2011
Profitability for the period:
Net interest income		$	24,650		$		25,126		$			25,729
Provision for loan losses			30,683				60,283					6,826
Non-interest income (loss)			5,519				(4,099)					6,804
Non-interest expense			27,564				27,782					27,226
Loss before income taxes			(28,078)				(67,038)					(1,519)
Net loss			(28,078)				(67,067)					(1,519)
Net loss available to common shareholders		$	(28,078)		$		(67,067)		$			(1,519)

Financial ratios:
Return on average assets(1)			(3.56)%				(7.90)%					(0.19)%
Return on average equity(1)			(35.97)%				(96.57)%					(1.96)%
Return on average tangible equity(1),(2)			(41.97)%				(116.91)%					(2.29)%
Net interest margin(1)			3.48%				3.26%					3.54%
Efficiency ratio			91.37%				132.13%					83.69%
Efficiency ratio, excluding non-operating income and non-operating expense(3)			91.37%				130.57%					83.69%

Loss per common share:
Basic		$	(0.34)		$		(1.25)		$			(0.02)
Diluted		$	(0.34)		$		(1.25)		$			(0.02)

Average equity to average assets			9.90%				8.18%					9.62%
		March 31,								December 31,
		2012		2011						2011
At period-end:
Total assets		$	3,113,269			$		3,333,808					3,183,916
Total deposits			2,631,652					2,847,467					2,667,977
Loans receivable, net of allowance for loan losses			2,173,427					2,211,824					2,249,455
Loans held-for-sale			25,034					115,473					23,192
Investments			576,457					470,546					532,715
Borrowings			31,083					33,329					31,269
Junior subordinated debentures			92,786					92,786					92,786
Shareholders' equity			283,163					286,739					309,083

Credit quality and capital ratios:
Allowance for loan losses to gross loans held-for-investment			2.34%					2.58%					1.82%
Non-performing assets to gross loans held-for-investment, loans held-for-sale and real estate owned			5.27%					8.05%					4.86%
Allowance for loan losses to non-performing loans			45.52%					50.41%					38.69%

Total capital (to risk-weighted assets)(4) :
Sun Bancorp, Inc.			14.45%					13.73%					15.22%
Sun National Bank			13.73%					12.65%					13.39%
Tier 1 capital (to risk-weighted assets) (4):
Sun Bancorp, Inc.			12.82%					12.11%					13.96%
Sun National Bank			12.47%					11.38%					12.13%
Leverage ratio:
Sun Bancorp, Inc.			10.21%					9.62%					11.09%
Sun National Bank			9.93%					9.05%					9.64%

Book value per common share		$	3.30			$		3.62			$		3.61
Tangible book value per common share		$	2.78			$		3.02			$		3.08
(1) Amounts for the three and twelve months ended are annualized.
(2) Return on average tangible equity is computed by dividing annualized net income for the period by average tangible equity. Average tangible equity equals average equity less average identifiable intangible assets and goodwill.
(3) Efficiency ratio, excluding non-operating income and non-operating expense, is computed by dividing non-interest expense for the period by the summation of net interest income and non-interest income. Non-interest income for the three months ended March 31, 2011 excludes net impairment losses on available for sale securities of $250 thousand.
(4) March 31, 2012 capital ratios are estimated, subject to regulatory filings.

SUN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
(Dollars in thousands, except par value amounts)
	March 31, 2012		December 31, 2011
ASSETS
Cash and due from banks	$	79,106	$	68,773
Interest-earning bank balances		8,447		51,049
Cash and cash equivalents		87,553		119,822
Investment securities available for sale (amortized cost of $555,988 and $514,488 at March 31, 2012 and December 31, 2011, respectively)		559,599		515,545
Investment securities held to maturity (estimated fair value of $1,081 and $1,413 at March 31, 2012 and December 31, 2011, respectively)		1,012		1,344
Loans receivable (net of allowance for loan losses of $52,127 and $41,667 at March 31, 2012 and December 31, 2011, respectively)		2,173,427		2,249,455
Loans held-for-sale		25,034		23,192
Restricted equity investments		15,846		15,826
Bank properties and equipment, net		53,656		54,756
Real estate owned		4,165		5,020
Accrued interest receivable		8,561		8,912
Goodwill		38,188		38,188
Intangible assets		6,025		6,947
Deferred taxes, net		-		-
Bank owned life insurance (BOLI)		75,388		74,871
Other assets		64,815		70,038
Total assets	$	3,113,269	$	3,183,916

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits	$	2,631,652	$	2,667,977
Securities sold under agreements to repurchase – customers		5,870		5,668
Advances from the Federal Home Loan Bank of New York (FHLBNY)		2,408		2,733
Securities sold under agreements to repurchase – FHLBNY		15,000		15,000
Obligations under capital lease		7,805		7,868
Junior subordinated debentures		92,786		92,786
Deferred taxes, net		1,475		432
Other liabilities		73,110		82,369
Total liabilities		2,830,106		2,874,833

Shareholders' equity:
Preferred stock, $1 par value, 1,000,000 shares authorized; none issued		-		-
Common stock, $1 par value, 200,000,000 shares authorized; 87,932,779 shares issued and 85,826,056 shares outstanding at March 31, 2012; 87,818,503 shares issued and 85,711,780 shares outstanding at December 31, 2011		87,924		87,825
Additional paid-in capital		505,057		504,508
Retained deficit		(285,598)		(257,520)
Accumulated other comprehensive income (loss)		2,135		625
Deferred compensation plan trust		(193)		(193)
Treasury stock at cost, 2,106,723 shares at December 31, 2011 and December 31, 2010		(26,162)		(26,162)
Total shareholders' equity		283,163		309,083
Total liabilities and shareholders' equity	$	3,113,269	$	3,183,916

SUN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(Dollars in thousands, except per share amounts)

For the Three Months

Ended March 31,

2012

2011

INTEREST INCOME

Interest and fees on loans

26,204

28,428

Interest on taxable investment securities

2,542

2,619

Interest on non-taxable investment securities

434

759

Dividends on restricted equity investments

227

243

Total interest income

29,407

32,049

INTEREST EXPENSE

Interest on deposits

3,684

5,590

Interest on funds borrowed

351

355

Interest on junior subordinated debentures

722

978

Total interest expense

4,757

6,923

Net interest income

24,650

25,126

PROVISION FOR LOAN LOSSES

30,683

60,283

Net interest loss after provision for loan losses

(6,033)

(35,157)

NON-INTEREST INCOME

Service charges on deposit accounts

2,668

2,550

Other service charges

Gain on sale of loans

716

925

Impairment losses on available for sale securities

(250)

Loss on sale of AFS Securities

(1,013)

Investment products income

432

888

BOLI income

516

546

Derivative credit valuation adjustment

(314)

(8,391)

Other

1,428

560

Total non-interest income (loss)

5,519

(4,099)

NON-INTEREST EXPENSE

Salaries and employee benefits

14,771

12,986

Occupancy expense

3,049

3,404

Equipment expense

1,765

1,682

Amortization of intangible assets

921

921

Data processing expense

1,056

1,065

Professional fees

479

765

Insurance expense

1,479

2,013

Advertising expense

297

565

Problem loan costs

1,477

3,107

Real estate owned expense (income), net

(5)

Office supplies expense

319

345

Other expense

1,870

934

Total non-interest expense

27,564

27,782

LOSS BEFORE INCOME TAXES

(28,078)

(67,038)

INCOME TAX EXPENSE

NET LOSS AVAILABLE TO COMMON SHAREHOLDERS

(28,078)

(67,067)

Basic loss per share

(0.34)

(1.25)

Diluted loss per share

(0.34)

(1.25)

Weighted average shares – basic

85,776,858

53,575,346

Weighted average shares - diluted

85,776,858

53,575,346

SUN BANCORP, INC. AND SUBSIDIARIES
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in thousands)
	2012		2011		2011		2011		2011
	Q1		Q4		Q3		Q2		Q1
Balance sheet at quarter end:
Cash and cash equivalents	$	87,553	$	119,822		134,209	$	192,645	$	266,504
Investment securities		576,457		532,715		557,380		478,814		470,546
Loans held-for-investment:
Commercial and industrial		1,820,054		1,878,026		1,899,231		1,905,628		1,862,903
Home equity		219,926		224,517		230,098		234,688		232,318
Second mortgage		38,815		41,470		45,030		47,920		50,388
Residential real estate		109,807		100,438		82,967		75,546		69,311
Other		36,952		46,671		49,077		52,825		55,402
Total gross loans held-for-investment		2,225,554		2,291,122		2,306,403		2,316,607		2,270,322
Allowance for loan losses		(52,127)		(41,667)		(55,227)		(58,328)		(58,498)
Net loans held-for-investment		2,173,427		2,249,455		2,251,176		2,258,279		2,211,824
Loans held-for-sale		25,034		23,192		20,868		20,514		115,473
Goodwill		38,188		38,188		38,188		38,188		38,188
Intangible assets		6,025		6,947		7,868		8,789		9,710
Total assets		3,113,269		3,183,916		3,236,219		3,213,790		3,333,808
Total deposits		2,631,652		2,667,977		2,727,650		2,723,676		2,847,467
Securities sold under agreements to repurchase - customers		5,870		5,668		6,026		6,743		6,591
Advances from FHLBNY		2,408		2,733		3,054		3,372		3,687
Securities sold under agreements to repurchase - FHLBNY		15,000		15,000		15,000		15,000		15,000
Obligations under capital lease		7,805		7,868		7,930		7,991		8,051
Junior subordinated debentures		92,786		92,786		92,786		92,786		92,786
Total shareholders' equity		283,163		309,083		308,055		298,819		286,739
Quarterly average balance sheet:
Loans(1):
Commercial and industrial	$	1,849,216	$	1,910,635	$	1,901,394	$	1,936,621		2,072,519
Home equity		220,411		226,345		232,458		234,451		235,962
Second mortgage		41,346		44,600		47,844		50,257		53,402
Residential real estate		123,567		111,514		89,010		76,816		73,662
Other		41,733		46,248		49,361		52,831		55,847
Total gross loans		2,276,273		2,339,342		2,320,067		2,350,976		2,491,392
Securities and other interest-earning assets		580,349		602,485		616,679		643,808		639,092
Total interest-earning assets		2,856,622		2,941,827		2,936,746		2,994,784		3,130,484
Total assets		3,154,984		3,229,699		3,234,551		3,287,485		3,394,139
Non-interest-bearing demand deposits		487,088		536,558		528,505		491,235		481,605
Total deposits		2,621,736		2,706,772		2,716,542		2,774,767		2,904,448
Total interest-bearing liabilities		2,265,830		2,294,786		2,313,896		2,409,629		2,549,566
Total shareholders' equity		312,281		310,786		308,025		299,427		277,808
Capital and credit quality measures:
Total capital (to risk-weighted assets) (2):
Sun Bancorp, Inc.		14.45%		15.22%		14.85%		14.51%		13.73%
Sun National Bank		13.73%		13.39%		13.07%		12.97%		12.65%
Tier 1 capital (to risk-weighted assets) (2):
Sun Bancorp, Inc.		12.82%		13.96%		13.59%		13.14%		12.11%
Sun National Bank		12.47%		12.13%		11.81%		11.71%		11.38%
Leverage ratio:
Sun Bancorp, Inc.		10.21%		11.09%		11.08%		10.47%		9.62%
Sun National Bank		9.93%		9.64%		9.64%		9.35%		9.05%

Average equity to average assets		9.91%		9.62%		9.52%		9.11%		8.18%
Allowance for loan losses to total gross loans held-for-investment		2.34%		1.82%		2.39%		2.52%		2.58%
Non-performing assets to gross loans held-for-investment, loans held-for-sale and real estate owned		5.27%		4.86%		6.04%		6.13%		8.04%
Allowance for loan losses to non-performing loans held-for-investment		45.52%		38.69%		42.23%		45.25%		50.41%

Other data:
Net charge-offs		(20,223)		(20,386)		(5,809)		(5,006)		(83,498)
Non-performing assets:
Non-accrual loans	$	87,847	$	89,656	$	107,665	$	113,806	$	113,959
Non-accrual loans held-for-sale		-		-		5,186		11,296		71,771
Troubled debt restructurings, non-accrual		26,674		17,875		22,353		15,090		831
Loans past due 90 days and accruing		74		154		744		-		1,263
Real estate owned, net		4,165		5,020		4,893		3,306		4,439
Total non-performing assets		118,760		112,705		140,841		143,498		192,263
Troubled debt restructuring, performing		-		-		-		-		20,276
(1) Average balances include non-accrual loans and loans held-for-sale (2) March 31, 2012 capital ratios are estimated, subject to regulatory filings.

SUN BANCORP, INC. AND SUBSIDIARIES
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in thousands, except share and per share amounts)
	2012		2011		2011		2011		2011
	Q1		Q4		Q3		Q2		Q1
Profitability for the quarter:
Tax-equivalent interest income	$	29,641	$	31,087	$	31,802	$	32,673	$	32,458
Interest expense		4,758		5,087		5,329		5,813		6,923
Tax-equivalent net interest income		24,883		26,000		26,473		26,860		25,535
Tax-equivalent adjustment		233		271		292		368		409
Provision for loan losses		30,683		6,826		2,321		4,836		60,283
Non-interest income (loss) excluding net impairment losses on available for sale securities		5,519		6,804		5,770		4,993		(3,849)
Net impairment losses on available for sale securities		-		-		-		-		(250)
Non-interest expense excluding amortization of intangible assets		26,643		26,305		26,051		27,323		26,861
Amortization of intangible assets		921		921		922		921		921
(Loss) income before income taxes		(28,078)		(1,519)