Sun Bancorp (SNBC)

[Enterprising Investor]

SNBC Reports Second Quarter 2012 Results (7/25/12)


VINELAND, N.J., July 25, 2012 /PRNewswire/ -- Sun Bancorp, Inc. (NASDAQ: SNBC) reported today net income available to common shareholders of $1.3 million, or $0.02 per diluted share, for the quarter ended June 30, 2012, compared to a net loss available to common shareholders of $1.6 million, or a loss of $0.02 per diluted share, for the second quarter of 2011.

The following are key items and events that occurred during the second quarter of 2012:

•Provision expense totaled $510 thousand as compared to $30.7 million in the first quarter of 2012. The allowance for loan losses equaled $51.4 million at quarter end, a decrease of $733 thousand from March 31, 2012, and an increase of $9.7 million from December 31, 2011. The allowance for loan losses equaled 2.29% of gross loans held for investment and 49.4% of non-performing loans as compared to 2.34% and 45.5% and 1.82% and 38.7%, respectively, at March 31, 2012 and December 31, 2011.

•The net interest margin equaled 3.53% versus 3.48% in the linked quarter. The current quarter margin was influenced by higher fees received as a result of the Company's troubled asset disposition successes during the quarter. Commercial loan production remained strong at $86 million during the second quarter versus $65 million in the linked quarter. The Company continues to aggressively seek opportunities to reduce its classified and non-performing loans and originate strong credits for the portfolio.

•Non-interest income increased $2.0 million to $7.5 million as compared to the linked quarter primarily due to an increase of $1.1 million in gains on the sale of mortgage loans and gains of $430 thousand on the sale of investment securities. The Company's enhancement of the residential mortgage platform has resulted in significant volume and fee increases as $139 million in residential mortgage loans were originated and $86 million sold during the second quarter as compared to $49 million and $30 million, respectively, in the linked quarter.

•Non-interest expense increased $3.0 million from the linked quarter to $30.6 million. The current quarter included approximately $1.7 million in additional salary and benefit costs associated with the buildup of the mortgage platform as well as a $565 thousand mortgage recourse reserve. The Company also recorded $611 thousand in advertising expenses related to its Boomerang free checking campaign. This product has enabled us to differentiate ourselves from our competitors by offering a free checking product with choice, flexibility and cash back opportunities.

•As previously announced, the Company closed three retail branches during the second quarter in order to create cost efficiencies and enhance the Company's ability to streamline operations in the branch network. These closures resulted in approximately $235 thousand in associated write-downs upon transfer of the properties to real estate owned.

•Total risk-based capital was 14.48% at June 30, 2012, well above the regulatory required level.

"The combination of our steadfast focus to strengthen the balance sheet and capitalize on niche growth opportunities has enabled us to return to profitability in the second quarter," said Thomas X. Geisel, Sun's President and Chief Executive Officer. "We continue to see meaningful progress in the restoration of our loan portfolio, and new loan originations. We are encouraged by this progress and remain committed to the actions and decisions that reinforce Sun's strength and success going forward."

Discussion of Results:

Balance Sheet

•Total assets were $3.13 billion at June 30, 2012, as compared to $3.18 billion at December 31, 2011 and $3.21 billion at June 30, 2011.

•Gross loans held-for-investment were $2.24 billion at June 30, 2012, as compared to $2.29 billion at December 31, 2011 and $2.32 billion at June 30, 2011. This decrease is the result of paydowns generated from the implementation of the Company's workout strategies as well as first quarter charge-off activity.

•Deposits decreased by $23.6 million from the linked quarter to $2.61 billion at June 30, 2012. The Company experienced some run-off in its interest-bearing checking accounts due to planned rate reductions.

Net Interest Income and Margin

•On a tax equivalent basis, net interest income increased $215 thousand over the linked quarter to $25.1 million. The average yield on interest-earning assets increased one basis point over the linked quarter from 4.15% to 4.16%. The average cost of interest-bearing liabilities decreased four basis points to 0.80%. The net interest margin increased five basis points to 3.53% from 3.48% for the linked quarter, but decreased six basis points as compared to the same prior year quarter. The increase from the prior quarter is due to significant pre-payment fees received through the resolution of one credit relationship. The margin variance from the prior year is due to the continuing pressures in the current interest rate environment.

Non-Interest Income

•Non-interest income was $7.5 million for the quarter ended June 30, 2012, an increase of $2.0 million from the linked quarter of $5.5 million and $2.5 million above the comparable prior year quarter of $5.0 million. The increase from the linked quarter was primarily attributable to an increase of $1.1 million in gains on the sale of mortgage loans and gains of $430 thousand on the sale of investment securities. In addition, the linked quarter included a negative derivative credit value adjustment of $314 thousand. The increase from the prior year period is due to an increase of $1.2 million in mortgage gains and a prior year derivative credit valuation adjustment of $3.6 million; offset by a decrease in investment gains of $2.0 million.

Non-Interest Expense

•The Company incurred $30.6 million of non-interest expense in the second quarter of 2012, an increase of $3.0 million over the linked quarter and an increase of $2.3 million from the comparable prior year quarter. Higher salary costs from the addition of new mortgage personnel and significantly increased volume was the primary driver of this increase. In addition, advertising expenses include $611 thousand in costs for the Company's new Boomerang free consumer checking product. The Company also recorded $565 thousand in mortgage repurchase recourse reserves. The increase in non-interest expense from the prior year period is due primarily to additional salaries and benefits expense associated with the mortgage expansion in 2012.

Asset Quality

•The provision for loan losses for the first quarter was $510 thousand, as compared to $30.7 million in the linked quarter and $4.8 million in the comparable prior year quarter. The allowance for loan losses was $51.4 million at June 30, 2012, or 2.29% 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 2.52% at June 30, 2011. Net charge-offs recorded in the current quarter were $1.2 million, or 0.06% of average loans, as compared to $20.2 million, or 0.89% of average loans for the linked quarter and $5.0 million, or 0.21% of average loans outstanding for the comparable prior year quarter.

•Total non-performing assets were $110.1 million, or 4.84% of total gross loans held-for-investment, loans held-for-sale and real estate owned at June 30, 2012, as compared to $118.8 million, or 5.27% and $143.5 million, or 6.13%, respectively, at March 31, 2012 and June 30, 2011. Non-performing loans decreased to $104.0 million at June 30, 2012 as compared to $114.6 million at March 31, 2012. This decrease is due primarily to paydowns which occurred during the second quarter as a result of the successful implementation of the Company's workout strategies.

Capital

•Stockholders' equity totaled $284.8 million at June 30, 2012 compared to $309.1 million at December 31, 2011. The Company's tangible equity to tangible assets ratio was 7.81% at June 30, 2012, as compared to 8.41% at December 31, 2011. At June 30, 2012, the Company's total risk-based capital ratio, Tier 1 capital ratio and leverage capital ratio were approximately 14.48%, 12.88%, and 10.45%, respectively. At June 30, 2012, Sun National Bank's total risk-based capital ratio, Tier 1 capital ratio and leverage capital ratio were approximately 13.76%, 12.50%, and 10.11%, respectively.

The Company will hold its regularly scheduled conference call on Thursday, July 26, 2012, at 11:00 a.m. (ET). Participants may listen to the live web cast via the "Investor Relations" section of 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 $3.13 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 more than 60 locations. Sun National Bank was named one of Forbes magazine's "Most Trustworthy Companies" for five consecutive years. 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.

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