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Sun Bancorp Q1 from loss to net income of $2.8 million

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Sun National Bank
Sun Bancorp   $0.15 per diluted share in the first quarter

Sun Bancorp, the holding company for Sun National Bank, reported net income of $2.8 million, or $0.15 per diluted share, for the first quarter ended March 31, 2015.


This compares to a net loss of $2.8 million, or a loss of $0.15 per diluted share, for the quarter ended December 31, 2014 and a net loss of $1.9 million, or a loss of $0.11 per diluted share, for the quarter ended March 31, 2014.

During the quarter, total assets fell $280.4 million from December 31, 2014 due primarily to the completion of the sale of seven branch locations in the Cape May, New Jersey market in March 2015 and deposit reductions. Total assets were $2.43 billion at March 31, 2015, as compared to $2.72 billion at December 31, 2014 and $3.04 billion at March 31, 2014.

The Bank's liquidity levels remain elevated, although cash and cash equivalents decreased to $388.2 million at March 31, 2015, as compared to $548.4 million at December 31, 2014. The decrease of $160.3 million in cash and cash equivalents was primarily due to the completion of the aforementioned branch sale as well as a planned run-off of certain deposit accounts.

Gross loans held-for-investment totaled $1.48 billion at March 31, 2015, as compared to $1.51 billion at December 31, 2014 and $2.08 billion at March 31, 2014. The decline in gross loans held-for-investment is due primarily to the Bank's new credit discipline and its aggressive work out strategies.

Additionally, during the first quarter of 2015, the Bank began to see increased loan originations primarily in commercial real estate by the Bank's new commercial lending teams. The Bank also completed the purchase of approximately $50 million of in-market multi-family loan participations and loan originations totaled $56 million in the first quarter of 2015.

Deposits were $1.96 billion at March 31, 2015, as compared to $2.09 billion at December 31, 2014 and $2.57 billion at March 31, 2014. The total quarterly cost of deposits fell by seven basis points to 0.28% in the first quarter of 2015 as compared to 0.35% in the first quarter of 2014 due to managed run-off of higher yielding municipal accounts and the re-pricing of certain retail deposits.

The Bank placed $4.8 million in loans, $33.4 million in deposits and $375 thousand of fixed assets into held-for-sale at March 31, 2015 related to the pending sale of its Hammonton branch location to Cape Bank, which is scheduled to close in the third quarter of 2015.

The Bank expects to record a gain on the sale of this location at closing. As a result of this pending sale, expenses of $231 thousand were recognized in the first quarter of 2015 to record the associated fixed assets to the lower of cost of market.

The net interest margin declined 10 basis points to 2.57% for the three months ended March 31, 2015 from 2.67% in the linked fourth quarter as average commercial loan balances declined by $93.7 million, or 8% over the quarter. While elevated liquidity levels continued to pressure the net interest margin in the first quarter, loan demand increased late in the quarter.

Non-interest income was $13.1 million for the quarter ended March 31, 2015, as compared to $4.1 million and $4.9 million for the quarters ended December 31, 2014 and March 31, 2014, respectively. The increase was primarily attributable to a $9.2 million gain on the sale of seven Cape May area bank branches to Sturdy Savings Bank.

Offsetting this increase were declines in deposit service charges and fees of $379 thousand and $391 thousand from the quarters ended December 31, 2014 and March 31, 2014, respectively, due to seasonal volume and the overall reduction in accounts as a result of the aforementioned branch sale. The quarter ended March 31, 2014 also included net mortgage banking revenue of $635 thousand, compared to $0 in the current quarter due to the prior year closure of the Company's mortgage banking operations.

Non-interest expense for the first quarter of 2015 was $25.2 million, an increase of $1.5 million from the fourth quarter of 2014 and a decrease of $2.7 million from the first quarter of 2014. During the first quarter of 2015, the Company recorded several restructuring charges related to the conclusion of the Bank's branch rationalization efforts, including $3.3 million of expenses associated with the pending branch consolidations and the sale of our Hammonton branch location.

Contained in this charge was $2.1 million of fixed asset impairments, $1.1 million of lease vacancy costs and $156 thousand of severance costs. For the remainder of 2015, the Company expects to recognize $1.3 million in accelerated depreciation expenses representing the write-off of fixed assets at branches scheduled for consolidation. The fourth quarter of 2014 included $2.3 million of lease termination charges.

In addition, snow removal costs due to the harsh winter totaled $1.3 million for the first quarter of 2015 as compared to $54 thousand in the fourth quarter of 2014 and $1.0 million in the first quarter of 2014. In the first quarter of 2015, problem loan expense included $667 thousand of one-time costs associated with loan sales. Excluding these items, the Company continues to experience substantial declines in operating expenses.

Non-performing loans held-for-investment continued to decline in the first quarter as the balance of non-performing loans held-for-investment decreased by 51% to $5.4 million at March 31, 2015 as compared to $11.0 million at December 31, 2014 and 86% as compared to $37.4 million at March 31, 2014. Non-performing loans held-for-investment to total gross loans held-for-investment declined to 0.36% at March 31, 2015 as compared to 0.73% at December 31, 2014 and 1.80% at March 31, 2014.

There was no provision expense recorded during the first quarter of 2015 or in the linked quarter or the first quarter of 2014, reflecting the Bank's substantially-improved asset quality metrics. Net charge-offs were $2.6 million in the first quarter of 2015 as compared to $3.3 million in the fourth quarter of 2014 and $1.8 million in the first quarter of 2014.

The net charge-offs in the first quarter of 2015 included $3.5 million of consumer net charge-offs due primarily to loan sale activity, partially offset by $857 thousand of commercial loan net recoveries.

The allowance for loan losses was $20.6 million, or 1.39% of gross loans held-for-investment, at March 31, 2015, as compared to $23.2 million, or 1.54% of gross loans held-for-investment, at December 31, 2014 and $33.8 million, or 1.62% of gross loans held-for-investment, at March 31, 2014.

The allowance for loan losses was 383% of non-performing loans held-for-investment at March 31, 2015 as compared to 210% at December 31, 2014 and 90% at March 31, 2014.


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