Sun Bancorp, Inc. Reports Fourth Quarter 2011 Results

Jan 30, 2012, 17:00 ET from Sun Bancorp, Inc.

VINELAND, N.J. Jan. 30, 2012 /PRNewswire/ -- Sun Bancorp, Inc. (Nasdaq: SNBC) reported today a net loss available to common shareholders of $1.5 million, or a loss of $0.02 per diluted share, for the fourth quarter ended December 31, 2011, compared to a net loss available to common shareholders of $28.2 million, or a loss of $0.67 per diluted share, for the fourth quarter ended December 31, 2010 which included a $25.1 million net loss on the sale of commercial real estate loans, and net income available to common shareholders of $2.7 million, or earnings of $0.03 per diluted share, for the third quarter ended September 30, 2011.

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

  • Non-performing loans decreased $27.5 million to $107.7 million at December 31, 2011 as compared to $135.9 million at September 30, 2011. Non-performing assets declined by $28.1 million from the linked quarter to $112.7 million at December 31, 2011.
  • Net charge-offs equaled $20.4 million, of which $17.0 million were related to the charge-off of previously established specific reserves. Provision expense totaled $6.8 million and the allowance for loan losses equaled $41.7 million, a decrease of $13.6 million from the prior quarter.
  • Average loans for the fourth quarter totaled $2.34 billion, up $19.3 million or 0.8%, compared to the prior quarter. Average deposits were down $9.8 million versus the prior quarter. The net interest margin equaled 3.54% versus 3.61% in the prior quarter.
  • Non-interest income increased $1.0 million to $6.8 million primarily due to a bank-owned life insurance distribution of $765 thousand and gains of $280 thousand on the sale of investment securities.
  • Tangible equity to assets equaled 8.41% as compared to 8.21% in the third quarter. Total Risk-based Capital equaled 15.22%.

"2011 was a year of commitment to our customers and the revitalization of our company.  We rolled up our sleeves and achieved the goals we set out to: we added talent, strengthened the balance sheet, improved operating performance and grew commercial loan production year-over-year by 36%," said Thomas X. Geisel, Sun's President and Chief Executive Officer.  "We ended the year with strong capital and reserves and are well positioned to continue our positive asset quality and operating trends.  We look forward to executing our corporate strategy in 2012 to serve our customers, create earnings and grow from the platform we established."

For the full year ended December 31, 2011, the Company reported a net loss of $67.5 million, or $0.88 per diluted share, as compared to a net loss of $185.4 million, or $6.56 per diluted share, in 2010.  Provision for loan losses totaled $74.3 million in 2011 versus $101.5 million in 2010.  Non-interest expense equaled $110.2 million in 2011 versus $201.1 million in the prior year.  Non-interest expense in 2010 included a goodwill impairment charge of $89.7 million.  Total assets at December 31, 2011 equaled $3.18 billion as compared to $3.42 billion at December 31, 2010.

Discussion of Results:

Balance Sheet

  • Total assets were $3.18 billion at December 31, 2011, as compared to $3.24 billion at September 30, 2011 and $3.42 billion at December 31, 2010.
  • Gross loans held-for-investment were $2.29 billion at December 31, 2011, as compared to $2.31 billion at September 30, 2011 and $2.52 billion at December 31, 2010. Compared to the linked quarter, loans held-for-investment decreased by $15.3 million as the Company recorded net charge-offs of $20.4 million in the fourth quarter.
  • Loans held-for-sale increased $2.3 million from the linked quarter to $23.2 million at December 31, 2011.
  • Shareholders' equity increased $1.0 million to $309.1 million at December 31, 2011 as compared to the linked quarter.

Net Interest Income and Margin

  • On a tax equivalent basis, net interest income decreased $473 thousand over the linked quarter to $26.0 million. The average cost of interest-bearing liabilities decreased three basis points to 0.89%. The average yield on interest-earning assets decreased 10 basis points over the linked quarter from 4.33% to 4.23%. The net interest margin declined seven basis points to 3.54% from 3.61% for the linked quarter. The margin increased 17 basis points from 3.37% for the comparable prior year quarter.

Non-Interest Income

  • Non-interest income was $6.8 million for the quarter ended December 31, 2011, an increase of $1.0 million over the linked quarter of $5.8 million and $993 thousand million below the comparable prior year quarter income of $7.8 million. The increase over 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.

Non-Interest Expense

  • The Company incurred $27.2 million of non-interest expense in the fourth quarter of 2011, an increase of $253 thousand over the linked quarter and a decrease of $723 thousand from the comparable prior year quarter. Higher problem loan and occupancy expenses were partially offset by lower personnel and legal expenses.

Asset Quality

  • The provision for loan losses for the fourth quarter was $6.8 million, as compared to $2.3 million in the linked quarter and $35.5 million in the comparable prior year quarter. The allowance for loan losses was $41.7 million at December 31, 2011, or 1.82% of gross loans held-for-investment, as compared to the allowance for loan losses to gross loans held-for-investment of 2.39% at September 30, 2011 and 3.24% at December 31, 2010. Net charge-offs recorded in the current quarter were $20.4 million, or 0.87% of average loans, as compared to $5.8 million, or 0.25% of average loans for the linked quarter and $28.4 million, or 1.05% of average loans outstanding for the comparable prior year quarter. The prior year quarter included charge-offs of $21.7 million related to the sale of commercial real estate loans.
  • Total non-performing assets were $112.7 million, or 4.86% of total gross loans held-for-investment, loans held-for-sale and real estate owned at December 31, 2011, as compared to $140.8 million, or 6.04% and $177.7 million, or 7.00%, respectively, at September 30, 2011 and December 31, 2010. Non-performing loans decreased $27.5 million over the linked quarter to $107.7 million at December 31, 2011 from $135.2 million at September 30, 2011.

Capital

  • Stockholders' equity totaled $309.1 million at December 31, 2011 compared to $308.1 million at September 30, 2011. The Company's tangible equity to tangible assets ratio was 8.41% at December 31, 2011, as compared to 8.21% at September 30, 2011 and 6.51% at December 31, 2010. At December 31, 2011, the Company's total risk-based capital ratio, Tier 1 capital ratio and leverage capital ratio were approximately 15.22%, 13.96%, and 11.09%, respectively. At December 31, 2011, Sun National Bank's total risk-based capital ratio, Tier 1 capital ratio and leverage capital ratio were approximately 13.39%, 12.13%, and 9.64%, respectively.

The Company will hold its regularly scheduled conference call on Tuesday, January 31, 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 $3.18 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 65 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 December 31, 2011 and 2010 were $271 thousand and $382 thousand, respectively.  The fully taxable equivalent adjustments for the twelve months ended December 31, 2011 and 2010 were $1.3 million and $1.8 million, respectively.  The fully taxable equivalent adjustment for the three months ended September 30, 2011 was $292 thousand. 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.  Non-operating loss for the three months ended March 31, 2011 and December 31, 2010 was $250 thousand and $379 thousand, respectively.  There were no non-operating income items during the three months ended December 31, 2011, September 30, 2011 or June 30, 2011.

SUN BANCORP, INC. AND SUBSIDIARIES

FINANCIAL HIGHLIGHTS (Unaudited)

(Dollars in thousands, except per share amounts)

For the Three Months Ended

For the Twelve Months Ended

December 31,

December 31,

2011

2010

2011

2010

Profitability for the period:

    Net interest income

$

25,729

$

27,273

$

103,528

$

110,962

    Provision for loan losses

6,826

35,511

74,266

101,518

    Non-interest income (loss)

6,804

7,797

13,468

15,512

    Non-interest expense

27,226

27,949

110,225

201,052

    Loss before income taxes

(1,519)

(28,390)

(67,495)

(176,096)

    Net loss

(1,519)

(28,493)

(67,505)

(185,418)

    Net loss available to common shareholders

$

(1,519)

$

(28,219)

$

(67,505)

$

(185,418)

Financial ratios:

    Return on average assets(1) 

(0.19)

%

(3.14)

%

(2.05)

%

(5.19)

%

    Return on average equity(1)

(1.96)

%

(37.88)

%

(22.57)

%

(56.82)

%

    Return on average tangible equity(1),(2)

(2.29)

%

(45.43)

%

(26.77)

%

(80.23)

%

    Net interest margin(1)

3.54

%

3.37

%

3.50

%

3.50

%

    Efficiency ratio

83.69

%

78.67

%

94.21

%

158.68

%

    Efficiency ratio, excluding non-operating income and non-operating expense(3)

83.69

%

77.83

%

94.01

%

86.84

%

    Loss per common share:

        Basic

$

(0.02)

$

(0.67)

$

(0.88)

$

(6.56)

        Diluted 

$

(0.02)

$

(0.67)

$

(0.88)

$

(6.56)

    Average equity to average assets

9.62

%

8.29

%

9.10

%

9.13

%

December 31,

2011

2010

At period-end:

    Total assets

$

3,183,916

$

3,417,546

    Total deposits

2,667,977

2,940,460

    Loans receivable, net of allowance for loan losses

2,249,455

2,439,633

    Loans held-for-sale

23,192

13,824

    Investments

532,715

493,493

    Borrowings

31,269

33,417

    Junior subordinated debentures

92,786

92,786

    Shareholders' equity

309,083

268,242

Credit quality and capital ratios:

    Allowance for loan losses to gross loans     held-for-investment

1.82

%

3.24

%

    Non-performing assets to gross loans held-for-investment, loans held-for-sale and real estate owned

4.86

%

7.00

%

    Allowance for loan losses to non-performing loans held-for-investment

38.69

%

47.02

%

Total capital (to risk-weighted assets):

        Sun Bancorp, Inc.

15.22

%

12.68

%

        Sun National Bank

13.39

%

12.25

%

Tier 1 capital (to risk-weighted assets):

        Sun Bancorp, Inc.

13.96

%

11.41

%

        Sun National Bank

12.13

%

10.98

%

Leverage ratio:

        Sun Bancorp, Inc.

11.09

%

8.93

%

        Sun National Bank

9.64

%

8.57

%

    Book value per common share

$

3.61

$

5.33

    Tangible book value per common share

$

3.08

$

4.36

(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 twelve months ended December 31, 2011 excludes net impairment losses on available for sale securities of $250 thousand. Non-interest income for the three and twelve months ended December 31, 2010 exclude a net impairment loss on available for sale securities of $379 thousand and $1.3 million, respectively. Non-interest expense for the twelve months ended December 31, 2010 excludes a goodwill impairment charge of $89.7 million.

SUN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)

(Dollars in thousands, except par value amounts)

December 31, 2011

December 31, 2010

ASSETS

Cash and due from banks

$

68,773

$

36,522

Interest-earning bank balances

51,049

150,704

Cash and cash equivalents

119,822

187,226

Investment securities available for sale (amortized cost of $514,488 and $483,255 at December 31, 2011 and December 31, 2010, respectively)

515,545

472,864

Investment securities held to maturity (estimated fair value of $1,413 and $3,155 at December 31, 2011 and December 31, 2010, respectively)

1,344

3,039

Loans receivable (net of allowance for loan losses of $41,667 and $81,713 at December 31, 2011 and December 31, 2010, respectively)

2,249,455

2,439,633

Loans held-for-sale

23,192

13,824

Restricted equity investments

15,826

17,590

Bank properties and equipment, net

54,756

53,428

Real estate owned

5,020

3,913

Accrued interest receivable

8,912

10,004

Goodwill

38,188

38,188

Intangible assets

6,947

10,631

Deferred taxes, net

-

4,245

Bank owned life insurance (BOLI)

74,871

74,656

Other assets

70,038

88,305

Total assets

$

3,183,916

$

3,417,546

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:

Deposits

$

2,667,977

$

2,940,460

Securities sold under agreements to repurchase – customers

5,668

6,307

Advances from the Federal Home Loan Bank of New York (FHLBNY)

2,733

3,999

Securities sold under agreements to repurchase – FHLBNY

15,000

15,000

Obligations under capital lease

7,868

8,111

Junior subordinated debentures

92,786

92,786

Deferred taxes, net

432

-

Other liabilities

82,369

82,641

Total liabilities

2,874,833

3,149,304

Shareholders' equity:

Preferred stock, $1 par value, 1,000,000 shares authorized; none issued

-

-

Common stock, $1 par value, 200,000,000 shares authorized; 87,818,503 shares issued and 85,711,780 shares outstanding at December 31, 2011; 52,463,594 shares issued and 50,356,871 shares outstanding at December 31, 2010

87,825

52,464

Additional paid-in capital

504,508

438,335

Retained deficit

(257,520)

(190,015)

Accumulated other comprehensive income (loss)

625

(6,146)

Deferred compensation plan trust

(193)

(234)

Treasury stock at cost, 2,106,723 shares at December 31, 2011 and December 31, 2010

(26,162)

(26,162)

Total shareholders' equity

309,083

268,242

Total liabilities and shareholders' equity

$

3,183,916

$

3,417,546

SUN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(Dollars in thousands, except per share amounts)

For the Three Months Ended December 31,

For the Twelve Months Ended December 31,

2011

2010

2011

2010

INTEREST INCOME

Interest and fees on loans

$

27,678

$

31,415

$

112,793

$

129,391

Interest on taxable investment securities

2,421

2,991

10,507

11,993

Interest on non-taxable investment securities

503

710

2,487

3,344

Dividends on restricted equity investments

214

238

893

875

Total interest income

30,816

35,354

126,680

145,603

INTEREST EXPENSE

Interest on deposits

4,041

6,657

18,737

28,780

Interest on funds borrowed

351

392

1,418

1,744

Interest on junior subordinated debentures

695

1,032

2,997

4,117

Total interest expense

5,087

8,081

23,152

34,641

Net interest income

25,729

27,273

103,528

110,962

PROVISION FOR LOAN LOSSES

6,826

35,511

74,266

101,518

Net Interest income (loss) after provision for loan losses

18,903

(8,238)

29,262

9,444

NON-INTEREST INCOME

Service charges on deposit accounts

2,799

2,715

10,889

11,572

Other service charges

71

94

330

364

Gain on sale of loans

906

1,324

3,247

3,560

Impairment losses on available for sale securities

-

(379)

(250)

(1,329)

Gain on sale of AFS Securities

280

4,607

1,688

4,751

Investment products income

453

726

2,913

2,831

BOLI income

1,309

452

2,964

2,074

Derivative credit valuation adjustment

(214)

(2,705)

(12,538)

(12,214)

Other

1,200

963

4,225

3,903

Total non-interest income (loss)

6,804

7,797

13,468

15,512

NON-INTEREST EXPENSE

Salaries and employee benefits

13,011

12,920

52,501

55,219

Occupancy expense

3,643

3,043

13,373

12,508

Equipment expense

1,858

1,634

7,342

6,783

Amortization of intangible assets

921

921

3,685

3,685

Goodwill impairment

-

-

-

89,706

Data processing expense

1,118

1,133

4,352

4,359

Professional fees

412

1,220

3,271

2,724

Insurance expense

1,433

2,064

6,186

7,696

Advertising expense

664

390

2,946

2,335

Problem loan costs

1,866

1,923

8,342

5,162

Real estate owned expense, net

108

398

1,186

801

Office supplies expense

323

338

1,307

1,501

Other expense

1,869

1,965

5,734

8,573

Total non-interest expense

27,226

27,949

110,225

201,052

LOSS BEFORE INCOME TAXES

(1,519)

(28,390)

(67,495)

(176,096)

INCOME TAX EXPENSE

-

103

10

9,322

NET LOSS

(1,519)

(28,493)

(67,505)

(185,418)

 Preferred stock dividends and discount accretion

-

(274)

-

-

NET LOSS AVAILABLE TO COMMON SHAREHOLDERS

$

(1,519)

$

(28,219)

$

(67,505)

$

(185,418)

Basic loss per share

$

(0.02)

$

(0.67)

$

(0.88)

$

(6.56)

Diluted loss per share

$

(0.02)

$

(0.67)

$

(0.88)

$

(6.56)

Weighted average shares – basic

85,587,878

42,119,553

76,653,990

28,258,953

Weighted average shares - diluted

85,587,878

42,119,553

76,653,990

28,258,953

SUN BANCORP, INC. AND SUBSIDIARIES

HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)

(Dollars in thousands)

2011

2011

2011

2011

2010

      Q4

      Q3

      Q2

      Q1

      Q4

Balance sheet at quarter end: 

Cash and cash equivalents

$

119,822

134,209

$

192,645

$

266,504

$

187,226

Investment securities

532,715

557,380

478,814

470,546

493,493

Loans held-for-investment: 

        Commercial and industrial

1,878,026

1,899,231

1,905,628

1,862,903

2,103,492

        Home equity 

224,517

230,098

234,688

232,318

239,729

        Second mortgage 

41,470

45,030

47,920

50,388

53,912

        Residential real estate 

100,438

82,967

75,546

69,311

65,250

        Other 

46,671

49,077

52,825

55,402

58,963

            Total gross loans held-for-investment

2,291,122

2,306,403

2,316,607

2,270,322

2,521,346

Allowance for loan losses 

(41,667)

(55,227)

(58,328)

(58,498)

(81,713)

            Net loans held-for-investment

2,249,455

2,251,176

2,258,279

2,211,824

2,439,633

  Loans held-for-sale

23,192

20,868

20,514

115,473

13,824

    Goodwill 

38,188

38,188

38,188

38,188

38,188

    Intangible assets

6,947

7,868

8,789

9,710

10,631

    Total assets 

3,183,916

3,236,219

3,213,790

3,333,808

3,417,546

    Total deposits

2,667,977

2,727,650

2,723,676

2,847,467

2,940,460

    Securities sold under agreements to repurchase - customers

5,668

6,026

6,743

6,591

6,307

    Advances from FHLBNY

2,733

3,054

3,372

3,687

3,999

    Securities sold under agreements to repurchase - FHLBNY

15,000

15,000

15,000

15,000

15,000

    Obligations under capital lease

7,868

7,930

7,991

8,051

8,111

    Junior subordinated debentures

92,786

92,786

92,786

92,786

92,786

    Total shareholders' equity

309,083

308,055

298,819

286,739

268,242

Quarterly average balance sheet: 

    Loans(1): 

        Commercial and industrial 

$

1,910,635

$

1,901,394

$

1,936,621

2,072,519

$

2,184,212

        Home equity

226,345

232,458

234,451

235,962

241,510

        Second mortgage 

44,600

47,844

50,257

53,402

57,310

        Residential real estate

111,514

89,010

76,816

73,662

88,144

        Other

46,248

49,361

52,831

55,847

57,522

            Total gross loans 

2,339,342

2,320,067

2,350,976

2,491,392

2,628,698

    Securities and other interest-earning assets 

602,485

616,679

643,808

639,092

658,013

    Total interest-earning assets 

2,941,827

2,936,746

2,994,784

3,130,484

3,286,711

    Total assets 

3,229,699

3,234,551

3,287,485

3,394,139

3,582,647

    Non-interest-bearing demand deposits 

536,558

528,505

491,235

481,605

509,093

    Total deposits 

2,706,772

2,716,542

2,774,767

2,904,448

3,032,594

    Total interest-bearing liabilities 

2,294,786

2,313,896

2,409,629

2,549,566

2,657,984

    Total shareholders' equity 

310,786

308,025

299,427

277,808

297,118

Capital and credit quality measures:

Total capital (to risk-weighted assets):

        Sun Bancorp, Inc.

15.22%

14.85

%

14.51

%

13.73

%

12.68

%

        Sun National Bank

13.39%

13.07

%

12.97

%

12.65

%

12.25

%

    Tier 1 capital (to risk-weighted assets):

        Sun Bancorp, Inc.

13.96%

13.59

%

13.14

%

12.11

%

11.41

%

        Sun National Bank

12.13%

11.81

%

11.71

%

11.38

%

10.98

%

    Leverage ratio:

        Sun Bancorp, Inc.

11.09%

11.08

%

10.47

%

9.62

%

8.93

%

        Sun National Bank

9.64%

9.64

%

9.35

%

9.05

%

8.57

%

    Average equity to average assets

9.62%

9.52

%

9.11

%

8.18

%

8.29

%

    Allowance for loan losses to total gross loans held-for-investment 

1.82%

2.39

%

2.52

%

2.58

%

3.24

%

    Non-performing assets to gross loans held-for-investment, loans held-for-sale and real estate owned

4.86%

6.04

%

6.13

%

8.04

%

7.00

%

    Allowance for loan losses to non-performing loans held-for-investment

38.69%

42.23

%

45.25

%

50.41

%

47.02

%

Other data:

Net charge-offs

(20,386)

(5,809)

(5,006)

(83,498)

(28,377)

Non-performing assets:

            Non-accrual loans

$

89,656

$

107,665

$

113,806

$

113,959

$

159,426

       Non-accrual loans held-for-sale

-

5,186

11,296

71,771

-

            Troubled debt restructurings, non-accrual

17,875

22,353

15,090

831

11,796

            Loans past due 90 days and accruing

154

744

-

1,263

2,554

            Real estate owned, net 

5,020

4,893

3,306

4,439

3,913

                Total non-performing assets

112,705

140,841

143,498

192,263

177,689

        Troubled debt restructuring, performing

-

-

-

20,276

20,341

(1)  Average balances include non-accrual loans and loans held-for-sale

SUN BANCORP, INC. AND SUBSIDIARIES

HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)

(Dollars in thousands, except share and per share amounts)

2011

2011

2011

2011

2010

      Q4

      Q3

      Q2

      Q1

      Q4

Profitability for the quarter:

Tax-equivalent interest income

$

31,087

$

31,802

$

32,673

$

32,458

$

35,736

Interest expense

5,087

5,329

5,813

6,923

8,081

Tax-equivalent net interest income

26,000

26,473

26,860

25,535

27,655

Tax-equivalent adjustment

271

292

368

409

382

Provision for loan losses

6,826

2,321

4,836

60,283

35,511

Non-interest income (loss) excluding net impairment losses on available for sale securities

6,804

5,770

4,993

(3,849)

8,176

Net impairment losses on available for sale securities

-

-

-

(250)

(379)

Non-interest expense excluding amortization of intangible assets

26,305

26,051

27,323

26,861

27,028

Amortization of intangible assets

921

922

921

921

921

(Loss) income before income taxes

(1,519)

2,657

(1,595)

(67,038)

(28,390)

Income tax (benefit) expense

-

(23)

4

29

103

Net (loss) income

(1,519)

2,680

(1,599)

(67,067)

(28,493)

Net (loss) income available to common shareholders

$

(1,519)

$

2,680

$

(1,599)

$

(67,067)

$

(28,219)

Financial ratios:

Return on average assets (1)

(0.19)%

0.33

%

(0.19)

%

(7.90)

%

(3.18)

%

Return on average equity (1)

(1.96)%

3.48

%

(2.14)

%

(96.57)

%

(38.36)

%

Return on average tangible equity (1),(2)

(2.29)%

4.10

%

(2.54)

%

(116.91)

%

(46.01)

%

Net interest margin (1)

3.54%

3.61

%

3.59

%

3.26

%

3.37

%

Efficiency ratio

83.69%

84.42

%

89.71

%

132.13

%

79.69

%

Efficiency ratio, excluding non-operating income and non-operating expense

83.69%

84.42

%

89.71

%

130.57

%

78.84

%

Per share data:

Income (loss) per common share:

Basic

$

(0.02)

$

0.03

$

(0.02)

$

(1.25)

$

(0.67)

Diluted

$

(0.02)

$

0.03

$

(0.02)

$

(1.25)

$

(0.67)

Book value

$

3.61

$

3.60

$

3.60

$

3.62

$

5.33

Tangible book value

$

3.08

$

3.06

$

3.03

$

3.02

$

4.36

Average basic shares

85,587,878

84,429,644

82,585,859

53,575,346

42,119,553

Average diluted shares

85,587,878

84,538,449

82,585,859

53,575,346

42,119,553

Operating non-interest income (loss):

Service charges on deposit accounts

$

2,799

2,838

$

2,702

$

2,550

$

2,715

Other service charges

71

85

88

86

94

Gain on sale of loans

906

708

708

925

1,324

Net gain (loss) on sale of available for sale securities

280

-

2,421

(1,013)

4,606

Investment products income

453

562

1,010

888

728

BOLI income

1,309

549

560

546

452

Derivative credit valuation adjustment

(214)

(309)

(3,624)

(8,391)

(2,705)

Other income

1,200

1,337

1,128

560

962

        Total operating non-interest income (loss)

6,804

5,770

4,993

(3,849)

8,176

Non-operating loss(3):

Net impairment losses on available for sale securities recognized in earnings

-

-

-

(250)

(379)

        Total non-operating loss

-

-

(250)

(379)

        Total non-interest income (loss)

$

6,804

5,770

$

4,993

$

(4,099)

$

7,797

Operating non-interest expense:

    Salaries and employee benefits

$

13,011

$

13,619

$

12,885

$

12,986

$

12,920

    Occupancy expense

3,643

3,021

3,305

3,404

3,043

    Equipment expense

1,858

1,899

1,903

1,682

1,634

    Data processing expense

1,118

1,058

1,111

1,065

1,133

    Amortization of intangible assets

921

922

921

921

921

    Insurance expense

1,433

1,479

1,261

2,013

2,064

    Professional fees

412

879

1,215

765

1,220

    Advertising expense

664

395

1,322

565

390

    Problem loan costs

1,866

1,506

1,863

3,107

1,923

    Real estate owned expense (income), net

108

448

635

(5)

398

    Office supplies expense

323

315

324

345

338

    Other expense

1,869

1,432

1,499

934

1,965

       Total non-interest expense

27,226

26,973

28,244

27,782

27,949

(1)  Amounts 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)  Amount consists of items which the Company believes are not a result of normal operations.

SUN BANCORP, INC. AND SUBSIDIARIES

AVERAGE BALANCE SHEETS (Unaudited)

(Dollars in thousands)

 For the Three Months Ended December 31,

2011

2010

Average

Income/

Yield/

Average

Income/

Yield/

Balance

Expense

Cost

Balance

Expense

Cost

Interest-earning assets:

Loans receivable (1),(2):

Commercial and industrial

$

1,910,635

$

22,542

4.72

%

$

2,184,212

25,654

4.70

%

Home equity

226,345

2,348

4.15

241,510

2,744

4.54

Second mortgage

44,600

656

5.88

57,310

869

6.07

Residential real estate

111,514

1,338

4.80

88,144

1,179

5.35

Other

46,248

794

6.87

57,522

969

6.74

Total loans receivable

2,339,342

27,678

4.73

2,628,698

31,415

4.78

Investment securities(3)

548,355

3,375

2.46

491,588

4,216

3.43

Interest-earning bank balances

54,130

34

0.25

166,425

105

0.25

Total interest-earning assets

2,941,827

31,087

4.23

3,286,711

35,736

4.35

Non-interest earning assets:

 Cash and due from banks

73,863

47,492

 Bank properties and equipment, net

55,264

53,018

 Goodwill and intangible assets, net

45,586

49,402

 Other assets

113,159

146,024

Total non-interest-earning assets

287,872

295,936

Total assets

$

3,229,699

$

3,582,647

Interest-bearing liabilities:

Interest-bearing deposit accounts:

Interest-bearing demand deposits

$

1,271,991

1,435

0.45

%

1,387,423

2,581

0.74

%

Savings deposits

265,115

285

0.43

281,401

510

0.72

Time deposits

633,108

2,321

1.47

854,677

3,566

1.67

Total interest-bearing deposit accounts

2,170,214

4,041

0.74

2,523,501

6,657

1.06

Short-term borrowings:

Federal funds purchased

141

-

-

-

-

-

Securities sold under agreements to repurchase - customers

5,906

1

0.07

14,457

8

0.22

Long-term borrowings:

FHLBNY advances (4)

17,842

219

4.91

19,102

246

5.15

Obligation under capital lease

7,897

131

6.64

8,138

138

6.78

Junior subordinated debentures

92,786

695

3.00

92,786

1,032

4.45

Total borrowings

124,572

1,046

3.36

134,483

1,424

4.24

Total interest-bearing liabilities

2,294,786

5,087

0.89

2,657,984

8,081

1.22

Non-interest bearing liabilities:

 Non-interest-bearing demand deposits

536,558

509,093

 Other liabilities

87,569

118,452

Total non-interest bearing liabilities

624,127

627,545

Total liabilities

2,918,913

3,285,529

Shareholders' equity 

310,786

297,118

Total liabilities and shareholders' equity

$

3,229,699

$

3,582,647

Net interest income

$

26,000

$

27,655

Interest rate spread (5)

3.34

%

3.13

%

Net interest margin (6)

3.54

%

3.37

%

Ratio of average interest-earning assets to average interest-bearing liabilities

128.20

%

123.65

%

(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 adjustments for the three months ended December 31, 2011 and 2010 were $271 thousand and $382 thousand, respectively.

(4)  Amounts include Advances from FHLBNY and Securities sold under agreements to repurchase - FHLBNY.

(5)  Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.

(6)  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 Twelve Months Ended December 31,

2011

2010

Average

Income/

Yield/

Average

Income/

Yield/

Balance

Expense

Cost

Balance

Expense

Cost

Interest-earning assets:

Loans receivable (1),(2):

Commercial and industrial

$

1,954,701

92,107

4.71

%

$

2,245,118

$

105,210

4.69

%

Home equity

232,278

9,774

4.21

251,599

11,714

4.66

Second mortgage

48,998

2,863

5.84

62,349

3,889

6.24

Residential real estate

87,858

4,547

5.18

79,547

4,415

5.55

Other

51,041

3,502

6.86

60,874

4,163

6.84

Total loans receivable

2,374,876

112,793

4.75

2,699,487

129,391

4.79

Investment securities (3)

505,006

14,940

2.96

452,365

17,846

3.95

Interest-earning bank balances

117,830

288

0.24

69,803

166

0.24

Total interest-earning assets

2,997,712

128,021

4.27

3,221,655

147,403

4.58

Non-interest earning assets:

 Cash and due from banks

72,455

47,393

 Bank properties and equipment, net

54,589

52,944

 Goodwill and intangible assets, net

46,961

95,010

 Other assets

114,158

150,558