Sun Bancorp, Inc. Reports Second Quarter 2012 Results

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Jul 25, 2012, 05:56 ET

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.

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 June 30, 2012 and 2011 were $217 thousand and $368 thousand, respectively. The fully taxable equivalent adjustments for the six months ended June 30, 2012 and 2011 were $449 thousand and $777 thousand, respectively. The fully taxable equivalent adjustment for the three months ended March 31, 2012 was $233,000. 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 June 30, 2012, March 31, 2012, December 31, 2011, September 30, 2011 and June 30, 2011. Non-operating loss during the six months ended June 30, 2011 was $250 thousand.

SUN BANCORP, INC. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS (Unaudited)
(Dollars in thousands, except per share amounts)
	For the Three Months Ended												For the Six Months Ended
	June 30,												June 30,
		2012					2011						2012					2011
Profitability for the period:
Net interest income		$		24,883			$			26,492			$		49,533			$	51,618
Provision for loan losses				510						4,836					31,193				65,119
Non-interest income				7,527						4,993					13,046				894
Non-interest expense				30,587						28,244					58,151				56,026
Income (loss) before income taxes				1,313						(1,595)					(26,765)				(68,633)
Net income (loss)				1,313						(1,599)					(26,765)				(68,666)
Net income (loss) available to common shareholders		$		1,313			$			(1,599)			$		(26,765)			$	(68,666)

Financial ratios:
Return on average assets⁽¹⁾				0.17	%					(0.19)	%				(1.71)		%		(4.11)		%
Return on average equity⁽¹⁾				1.84	%					(2.14)	%				(17.90)		%		(47.57)		%
Return on average tangible equity^(1),(2)				2.17	%					(2.54)	%				(21.01)		%		(57.03)		%
Net interest margin⁽¹⁾				3.53	%					3.59	%				3.51		%		3.43		%
Efficiency ratio				94.38	%					89.71	%				92.92		%		106.69		%
Efficiency ratio, excluding non-operating income and non-operating expense⁽³⁾				94.38	%					89.71	%				92.92		%		106.19		%

Earnings (loss) per common share:
Basic		$		0.02			$			(0.02)			$		(0.31)			$	(1.01)
Diluted		$		0.02			$			(0.02)			$		(0.31)			$	(1.01)

Average equity to average assets				9.17	%					9.11	%				9.53		%		8.64		%
			June 30,										December 31,
			2012			2011							2011
At period-end:
Total assets			$	3,133,484				$	3,213,790				$			3,183,916
Total deposits				2,608,034					2,723,676							2,667,977
Loans receivable, net of allowance for loan losses				2,193,492					2,258,279							2,249,455
Loans held-for-sale⁽⁴⁾				24,672					20,514							23,192
Investments				549,601					478,814							532,715
Borrowings				50,274					33,106							31,269
Junior subordinated debentures				92,786					92,786							92,786
Shareholders' equity				284,768					298,819							309,083

Credit quality and capital ratios:
Allowance for loan losses to gross loans held-for-investment				2.29		%			2.52			%				1.82				%
Non-performing assets to gross loans held-for-investment, loans held-for-sale and real estate owned				4.84		%			6.13			%				4.86				%
Allowance for loan losses to non-performing loans held-for-investment				49.44		%			45.25			%				38.69				%

Total capital (to risk-weighted assets):
Sun Bancorp, Inc.				14.48		%			14.51			%				15.22				%
Sun National Bank				13.76		%			12.97			%				13.39				%
Tier 1 capital (to risk-weighted assets):
Sun Bancorp, Inc.				12.88		%			13.14			%				13.96				%
Sun National Bank				12.50		%			11.71			%				12.13				%
Leverage ratio:
Sun Bancorp, Inc.				10.45		%			10.47			%				11.09				%
Sun National Bank				10.11		%			9.35			%				9.64				%

Book value per common share			$	3.31				$	3.60					$		3.61
Tangible book value per common share			$	2.81				$	3.03					$		3.08
(1) Amounts for the three and six 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 six months ended June 30, 2011 excludes net impairment losses on available for sale securities of $250 thousand.
(4) Amount at June 30, 2011 includes $11.3 million of commercial real estate loans marked at fair value.

SUN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
(Dollars in thousands, except par value amounts)
	June 30, 2012		December 31, 2011
ASSETS
Cash and due from banks	$	75,235	$	68,773
Interest-earning bank balances		40,656		51,049
Cash and cash equivalents		115,891		119,822
Investment securities available for sale (amortized cost of $529,237 and $514,488 at June 30, 2012 and December 31, 2011, respectively)		532,275		515,545
Investment securities held to maturity (estimated fair value of $984 and $1,413 at June 30, 2012 and December 31, 2011, respectively)		920		1,344
Loans receivable (net of allowance for loan losses of $51,394 and $41,667 at June 30, 2012 and December 31, 2011, respectively)		2,193,492		2,249,455
Loans held-for-sale		24,672		23,192
Restricted equity investments		16,654		15,826
Bank properties and equipment, net		52,121		54,756
Real estate owned		6,116		5,020
Accrued interest receivable		8,130		8,912
Goodwill		38,188		38,188
Intangible assets		5,104		6,947
Bank owned life insurance (BOLI)		75,881		74,871
Other assets		64,043		70,038
Total assets	$	3,133,487	$	3,183,916

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits	$	2,608,034	$	2,667,977
Securities sold under agreements to repurchase – customers		5,454		5,668
Advances from the Federal Home Loan Bank of New York (FHLBNY)		2,080		2,733
Securities sold under agreements to repurchase – FHLBNY		35,000		15,000
Obligations under capital lease		7,740		7,868
Junior subordinated debentures		92,786		92,786
Deferred taxes, net		1.241		432
Other liabilities		96.384		82,369
Total liabilities		2,848,719		2,874,833

Shareholders' equity:
Preferred stock, $1 par value, 1,000,000 shares authorized; none issued		-		-
Common stock, $1 par value, 100,000,000 shares authorized; 88,066,015 shares issued and 85,859,292 shares outstanding at June 30, 2012; 87,825,038 shares issued and 85,718,315 shares outstanding at December 31, 2011		88.073		87,825
Additional paid-in capital		505.577		504,508
Retained deficit		(284.285)		(257,520)
Accumulated other comprehensive income		1,797		625
Deferred compensation plan trust		(232)		(193)
Treasury stock at cost, 2,106,723 shares at June 30, 2012 and December 31, 2011		(26,162)		(26,162)
Total shareholders' equity		284,768		309,083
Total liabilities and shareholders' equity	$	3,133,487	$	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 June 30,				For the Six Months Ended June 30,
		2012		2011		2012		2011
INTEREST INCOME
Interest and fees on loans	$	26,202	$	28,538	$	52,406	$	56,966
Interest on taxable investment securities		2,515		2,864		5,057		5,483
Interest on non-taxable investment securities		401		683		835		1,442
Dividends on restricted equity investments		284		220		511		463
Total interest income		29,402		32,305		58,809		64,354
INTEREST EXPENSE
Interest on deposits		3,447		4,808		7,131		10,398
Interest on funds borrowed		368		356		719		711
Interest on junior subordinated debentures		704		649		1,426		1,627
Total interest expense		4,519		5,813		9,276		12,736
Net interest income		24,883		26,492		49,533		51,618
PROVISION FOR LOAN LOSSES		510		4,836		31,193		65,119
Net Interest income (loss) after provision for loan losses		24,373		21,656		18,340		(13,501)
NON-INTEREST INCOME
Service charges on deposit accounts		2,730		2,702		5,398		5,252
Other service charges		80		88		153		174
Gain on sale of loans		1,865		708		2,581		1,633
Impairment losses on available for sale securities		-		-		-		(250)
Gain on sale of investment securities		430		2,421		430		1,408
Investment products income		748		1,010		1,180		1,898
BOLI income		492		560		1,009		1,106
Derivative credit valuation adjustment		(13)		(3,624)		(327)		(12,015)
Other		1,195		1,128		2,622		1,688
Total non-interest income		7,527		4,993		13,046		894
NON-INTEREST EXPENSE
Salaries and employee benefits		15,756		12,885		30,527		25,871
Occupancy expense		3,271		3,305		6,320		6,709
Equipment expense		1,763		1.903		3,528		3,585
Amortization of intangible assets		921		921		1,842		1,842
Data processing expense		1,106		1,111		2,162		2,176
Professional fees		757		1,215		1,236		1,980
Insurance expenses		1,464		1,261		2,943		3,274
Advertising expense		1,008		1,322		1,305		1,887
Problem loan expense		1,274		1,863		2,751		4,970
Real estate owned expense, net		490		635		571		630
Office supplies expense		328		324		647		669
Other		2,449		1,499		4,319		2,433
Total non-interest expense		30,587		28,244		58,151		56,026
INCOME (LOSS) BEFORE INCOME TAXES		1,313		(1,595)		(26,765)		(68,633)
INCOME TAX EXPENSE		-		4		-		33
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS	$	1,313	$	(1,599)	$	(26,765)	$	(68,666)

Basic earnings (loss) per share	$	0.02	$	(0.02)	$	(0.31)	$	(1.01)
Diluted earnings (loss) per share	$	0.02	$	(0.02)	$	(0.31)	$	(1.01)
Weighted average shares – basic	85,884,671		82,585,859		85,830,764		68,160,742
Weighted average shares - diluted	85,916,426		82,585,859		85,830,764		68,160,742

SUN BANCORP, INC. AND SUBSIDIARIES
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in thousands)
	2012		2012		2011		2011		2011
	Q2		Q1		Q4		Q3		Q2
Balance sheet at quarter end:
Cash and cash equivalents	$	115,891	$	87,553	$	119,822	$	134,209	$	192,645
Investment securities		549,849		576,457		532,715		557,380		478,814
Loans held-for-investment:
Commercial and industrial		1,794,830		1,820,054		1,878,026		1,899,231		1,905,628
Home equity		217,768		219,926		224,517		230,098		234,688
Second mortgage		36,429		38,815		41,470		45,030		47,920
Residential real estate		153,373		109,807		100,438		82,967		75,546
Other		42,486		36,952		46,671		49,077		52,825
Total gross loans held-for-investment		2,244,886		2,225,554		2,291,122		2,306,403		2,316,607
Allowance for loan losses		(51,394)		(52,127)		(41,667)		(55,227)		(58,328)
Net loans held-for-investment		2,193,492		2,173,427		2,249,455		2,251,176		2,258,279
Loans held-for-sale		24,672		25,034		23,192		20,868		20,514
Goodwill		38,188		38,188		38,188		38,188		38,188
Intangible assets		5,104		6,025		6,947		7,868		8,789
Total assets		3,133,487		3,113,269		3,183,916		3,236,219		3,213,790
Total deposits		2,608,034		2,631,652		2,667,977		2,727,650		2,723,676
Securities sold under agreements to repurchase - customers		5,454		5,870		5,668		6,026		6,743
Advances from FHLBNY		2,080		2,408		2,733		3,054		3,372
Securities sold under agreements to repurchase - FHLBNY		35,000		15,000		15,000		15,000		15,000
Obligations under capital lease		7,740		7,805		7,868		7,930		7,991
Junior subordinated debentures		92,786		92,786		92,786		92,786		92,786
Total shareholders' equity		284,768		283,163		309,083		308,055		298,819
Quarterly average balance sheet:
Loans⁽¹⁾:
Commercial and industrial	$	1,815,704	$	1,849,216	$	1,910,635	$	1,901,394	$	1,936,621
Home equity		218,910		220,411		226,345		232,458		234,451
Second mortgage		38,545		41,346		44,600		47,844		50,257
Residential real estate		155,479		123,567		111,514		89,010		76,816
Other		34,765		41,733		46,248		49,361		52,831
Total gross loans		2,263,403		2,276,273		2,339,342		2,320,067		2,350,976
Securities and other interest-earning assets		583,788		580,349		602,485		616,679		643,808
Total interest-earning assets		2,847,191		2,856,622		2,941,827		2,936,746		2,994,784
Total assets		3,116,627		3,154,984		3,229,699		3,234,551		3,287,485
Non-interest-bearing demand deposits		493,707		487,088		536,558		528,505		491,235
Total deposits		2,604,083		2,621,736		2,706,772		2,716,542		2,774,767
Total interest-bearing liabilities		2,259,370		2,265,830		2,294,786		2,313,896		2,409,629
Total shareholders' equity		285,667		312,281		310,786		308,025		299,427
Capital and credit quality measures:
Total capital (to risk-weighted assets)⁽²⁾:
Sun Bancorp, Inc.		14.48%		14.49%		15.22%		14.85%		14.51%
Sun National Bank		13.76%		13.77%		13.39%		13.07%		12.97%
Tier 1 capital (to risk-weighted assets)⁽²⁾:
Sun Bancorp, Inc.		12.88%		12.86%		13.96%		13.59%		13.14%
Sun National Bank		12.50%		12.51%		12.13%		11.81%		11.71%
Leverage ratio:
Sun Bancorp, Inc.		10.45%		10.21%		11.09%		11.08%		10.47%
Sun National Bank		10.11%		9.93%		9.64%		9.64%		9.35%

Average equity to average assets		9.17%		9.91%		9.62%		9.52%		9.11%
Allowance for loan losses to total gross loans held-for-investment		2.29%		2.34%		1.82%		2.39%		2.52%
Non-performing assets to gross loans held-for-investment, loans held-for-sale and real estate owned		4.84%		5.27%		4.86%		6.04%		6.13%
Allowance for loan losses to non-performing loans held-for-investment		49.44%		45.52%		38.69%		42.23%		45.25%

Other data:
Net charge-offs		(1,243)		(20,223)		(20,386)		(5,809)		(5,006)
Non-performing assets:
Non-accrual loans	$	79,696	$	87,847	$	89,656	$	107,665	$	113,806
Non-accrual loans held-for-sale		-		-		-		5,186		11,296
Troubled debt restructurings, non-accrual		24,256		26,674		17,875		22,353		15,090
Loans past due 90 days and accruing		-		74		154		744		-
Real estate owned, net		6,116		4,165		5,020		4,893		3,306
Total non-performing assets		110,068		118,760		112,705		140,841		143,498
(1) Average balances include non-accrual loans and loans held-for-sale (2) June 30, 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		2012		2011		2011		2011
	Q2		Q1		Q4		Q3		Q2
Profitability for the quarter:
Tax-equivalent interest income	$	29,619	$	29,641	$	31,087	$	31,802	$	32,673
Interest expense		4,519		4,758		5,087		5,329		5,813
Tax-equivalent net interest income		25,098		24,883		26,000		26,473		26,860
Tax-equivalent adjustment		217		233		271		292		368
Provision for loan losses		510		30,683		6,826		2,321		4,836
Non-interest income (loss) excluding net impairment losses on available for sale securities		7,527		5,519		6,804		5,770		4,993
Non-interest expense excluding amortization of intangible assets		29,666		26,643		26,305		26,051		27,323
Amortization of intangible assets		921		921		921		922		921
Income (loss) before income taxes		1,313		(28,078)		(1,519)		2,657		(1,595)
Income tax (benefit) expense		-		-		-		(23)		4
Net income (loss)		1,313		(28,078)		(1,519)		2,680		(1,599)
Net income (loss) available to common shareholders	$	1,313	$	(28,078)	$	(1,519)	$	2,680	$	(1,599)
Financial ratios:
Return on average assets ⁽¹⁾		0.17%		(3.56)%		(0.19)%		0.33%		(0.19)%
Return on average equity ⁽¹⁾		1.84%		(35.97)%		(1.96)%		3.48%		(2.14)%
Return on average tangible equity ^(1),(2)		2.17%		(41.97)%		(2.29)%		4.10%		(2.54)%
Net interest margin ⁽¹⁾		3.53%		3.48%		3.54%		3.61%		3.59%
Efficiency ratio		94.38%		91.37%		83.69%		84.42%		89.71%
Per share data:
Income (loss) per common share:
Basic	$	0.02	$	(0.34)	$	(0.02)	$	0.03	$	(0.02)
Diluted	$	0.02	$	(0.34)	$	(0.02)	$	0.03	$	(0.02)
Book value	$	3.31	$	3.30	$	3.61	$	3.60	$	3.60
Tangible book value	$	2.81	$	2.78	$	3.08	$	3.06	$	3.03
Average basic shares	85,884,671		85,776,858		85,587,878		84,429,644		82,585,859
Average diluted shares	85,916,426		85,776,858		85,587,878		84,538,449		82,585,859
Operating non-interest income (loss):
Service charges on deposit accounts	$	2,730	$	2,668	$	2,799	$	2,838	$	2,702
Other service charges		80		73		71		85		88
Gain on sale of loans		1,865		716		906		708		708
Net gain on sale of available for sale securities		430		-		280		-		2,421
Investment products income		748		432		453		562		1,010
BOLI income		492		516		1,309		549		560
Derivative credit valuation adjustment		(13)		(314)		(214)		(309)		(3,624)
Other income		1,195		1,428		1,200		1,337		1,128
Total non-interest income	$	7,527	$	5,519	$	6,804		5,770	$	4,993
Operating non-interest expense:
Salaries and employee benefits	$	15,756	$	14,771	$	13,011	$	13,619	$	12,885
Occupancy expense		3,271		3,049		3,643		3,021		3,305
Equipment expense		1,763		1,765		1,858		1,899		1,903
Data processing expense		1,106		1,056		1,118		1,058		1,111
Amortization of intangible assets		921		921		921		922		921
Insurance expense		1,464		1,479		1,433		1,479		1,261
Professional fees		757		479		412		879		1,215
Advertising expense		1,008		297		664		395		1,322
Problem loan costs		1,274		1,477		1,866		1,506		1,863
Real estate owned expense (income),net		490		81		108		448		635
Office supplies expense		328		319		323		315		324
Other expense		2,449		1,870		1,869		1,432		1,499
Total non-interest expense	$	30,587	$	27,564	$	27,226	$	26,973	$	28,244
(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.

SUN BANCORP, INC. AND SUBSIDIARIES
AVERAGE BALANCE SHEETS (Unaudited)
(Dollars in thousands)
	For the Three Months Ended June 30,
	2012							2011
	Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Cost			Balance		Expense		Cost
Interest-earning assets:
Loans receivable ^(1),(2):
Commercial and industrial	$	1,815,704	$	21,123		4.65	%	$	1,936,621	$	23,385		4.83	%
Home equity		218,910		2,297		4.20			234,451		2,458		4.19
Second mortgage		38,545		550		5.71			50,257		734		5.84
Residential real estate		155,479		1,608		4.14			76,816		1,042		5.43
Other		34,765		624		7.18			52,831		919		6.96
Total loans receivable		2,263,403		26,202		4.63			2,350,976		28,538		4.86
Investment securities⁽³⁾		558,708		3,402		2.44			501,959		4,049		3.23
Interest-earning bank balances		25,080		15		0.24			141,849		86		0.24
Total interest-earning assets		2,847,191		29,619		4.16			2,994,784		32,673		4.36
Non-interest earning assets:
Cash and due from banks		72,472							75,200
Bank properties and equipment, net		53,164							54,065
Goodwill and intangible assets, net		43,745							47,431
Other assets		100,055							116,005
Total non-interest-earning assets		269,436							292,701
Total assets	$	3,116,627						$	3,287,485

Interest-bearing liabilities:
Interest-bearing deposit accounts:
Interest-bearing demand deposits	$	1,208,250	$	1,146		0.38	%	$	1,321,341	$	1,822		0.55	%
Savings deposits		262,947		217		0.33			275,315		379		0.55
Time deposits		639,179		2,084		1.30			686,876		2,607		1.52
Total interest-bearing deposit accounts		2,110,376		3,447		0.65			2,283,532		4,808		0.84
Short-term borrowings:
Federal funds purchased		8,956		9		0.40			-		-		-
Securities sold under agreements to repurchase - customers		5,807		2		0.14			6,813		2		0.12
Long-term borrowings:
FHLBNY advances ⁽⁴⁾		33,675		229		2.72			18,479		224		4.85
Obligations under capital lease		7,770		129		6.64			8,019		130		6.48
Junior subordinated debentures		92,786		703		3.04			92,786		649		2.80
Total borrowings		148,994		1,072		2.88			126,097		1,005		3.19
Total interest-bearing liabilities		2,259,370		4,521		0.80			2,409,629		5,813		0.96
Non-interest bearing liabilities:
Non-interest-bearing demand deposits		493,707							491,235
Other liabilities		77,883							87,194
Total non-interest bearing liabilities		571,590							578,429
Total liabilities		2,830,960							2,988,058
Shareholders' equity		285,667							299,427
Total liabilities and shareholders' equity	$	3,116,627						$	3,287,485

Net interest income			$	25,098						$	26,860
Interest rate spread ⁽⁵⁾						3.36	%						3.40	%
Net interest margin ⁽⁶⁾						3.53	%						3.59	%
Ratio of average interest-earning assets to average interest-bearing liabilities						126.02	%						124.28	%

(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 June 30, 2012 and 2011 were $217 thousand and $368 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 Six Months Ended June 30,
	2012							2011
	Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Cost			Balance		Expense		Cost
Interest-earning assets:
Loans receivable ^(1),(2):
Commercial and industrial	$	1,832,460	$	42,398		4.63	%	$	2,004,195	$	46,537		4.64	%
Home equity		219,661		4,542		4.41			235,203		5,008		4.26
Second mortgage		39,946		1,140		5.71			51,821		1,509		5.82
Residential real estate		139,523		2,984		4.28			75,247		2,048		5.44
Other		38,249		1,342		7.02			54,331		1,864		6.86
Total loans receivable		2,269,839		52,406		4.62			2,420,797		56,966		4.71
Investment securities ⁽³⁾		554,603		6,821		2.46			486,366		7,983		3.28
Interest-earning bank balances		27,465		31		0.23			149,944		182		0.24
Total interest-earning assets		2,851,907		59,258		4.16			3,057,107		65,131		4.26
Non-interest earning assets:
Cash and due from banks		72,111							71,592
Bank properties and equipment, net		53,751							53,803
Goodwill and intangible assets, net		44,206							47,889
Other assets		113,720							110,127
Total non-interest-earning assets		283,788							283,411
Total assets	$	3,135,695						$	3,340,518

Interest-bearing liabilities:
Interest-bearing deposit accounts:
Interest-bearing demand deposits	$	1,229,970	$	2,406		0.39	%	$	1,357,063	$	4,000		0.59	%
Savings deposits		262,575		446		0.34			276,356		806		0.58
Time deposits		629,967		4,280		1.36			719,383		5,592		1.55
Total interest-bearing deposit accounts		2,122,512		7,132		0.67			2,352,802		10,398		0.88
Short-term borrowings:
Federal funds purchased		7,665		14		0.37			-		-		-
Securities sold under agreements to repurchase - customers		6,238		4		0.13			6,938		5		0.14
Long-term borrowings:
FHLBNY advances ⁽⁴⁾		25,597		443		3.46			18,635		442		4.74
Obligations under capital lease		7,802		259		6.64			8,049		264		6.56
Junior subordinated debentures		92,786		1,426		3.07			92,786		1,627		3.51
Total borrowings		140,088		2,146		3.06			126,408		2,338		3.70
Total interest-bearing liabilities		2,262,600		9,278		0.82			2,479,210		12,736		1.03
Non-interest bearing liabilities:
Non-interest-bearing demand deposits		490,398							486,446
Other liabilities		83,722							86,184
Total non-interest bearing liabilities		574,120							572,630
Total liabilities		2,836,720							3,051,840
Shareholders' equity		298,974							288,678
Total liabilities and shareholders' equity	$	3,135,694						$	3,340,518

Net interest income			$	49,980						$	52,395
Interest rate spread ⁽⁵⁾						3.34	%						3.23	%
Net interest margin ⁽⁶⁾						3.51	%						3.43	%
Ratio of average interest-earning assets to average interest-bearing liabilities						126.05	%						123.31	%

(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 six months ended June 30, 2012 and 2011 were $449 thousand and $777 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 Three Months Ended
	June 30, 2012							December 31, 2011
	Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Cost			Balance		Expense		Cost
Interest-earning assets:
Loans receivable ^(1),(2):
Commercial and industrial	$	1,815,704	$	21,123		4.65	%	$	1,910,635	$	22,542		4.72	%
Home equity		218,910		2,297		4.20			226,345		2,348		4.15
Second mortgage		38,545		550		5.71			44,600		656		5.88
Residential real estate		155,479		1,608		4.14			111,514		1,338		4.80
Other		34,765		624		7.18			46,248		794		6.87
Total loans receivable		2,263,403		26,202		4.63			2,339,342		27,678		4.73
Investment securities ⁽³⁾		558,708		3,402		2.44			548,355		3,375		2.46
Interest-earning bank balances		25,080		15		0.24			54,130		34		0.25
Total interest-earning assets		2,847,191		29,619		4.16			2,941,827		31,087		4.23
Non-interest earning assets:
Cash and due from banks		72,472							73,863
Bank properties and equipment, net		53,164							55,264
Goodwill and intangible assets, net		43,745							45,586
Other assets		100,055							113,159
Total non-interest-earning assets		269,436							287,872
Total assets	$	3,116,627						$	3,229,699

Interest-bearing liabilities:
Interest-bearing deposit accounts:
Interest-bearing demand deposits	$	1,208,250	$	1,146		0.38	%	$	1,271,991		1,435		0.45	%
Savings deposits		262,947		217		0.33			265,115		285		0.43
Time deposits		639,179		2,084		1.30			633,108		2,321		1.47
Total interest-bearing deposit accounts		2,110,376		3,447		0.65			2,170,214		4,041		0.74
Short-term borrowings:
Federal funds purchased		8,956		9		0.40			141		-		-
Securities sold under agreements to repurchase - customers		5,807		2		0.14			5,906		1		0.07
Long-term borrowings:
FHLBNY advances ⁽⁴⁾		33,675		229		2.72			17,842		219		4.91
Obligations under capital lease		7,770		129		6.64			7,897		131		6.64
Junior subordinated debentures		92,786		703		3.04			92,786		695		3.00
Total borrowings		148,994		1,072		2.88			124,572		1,046		3.36
Total interest-bearing liabilities		2,259,370		4,521		0.80			2,294,786		5,087		0.89
Non-interest bearing liabilities:
Non-interest-bearing demand deposits		493,707							536,558
Other liabilities		77,883							87,569
Total non-interest bearing liabilities		571,590							624,127
Total liabilities		2,830,960							2,918,913
Shareholders' equity		285,667							310,786
Total liabilities and shareholders' equity	$	3,116,627						$	3,229,699

Net interest income			$	25,098						$	26,000
Interest rate spread ⁽⁵⁾						3.36	%						3.34	%
Net interest margin ⁽⁶⁾						3.53	%						3.54	%
Ratio of average interest-earning assets to average interest-bearing liabilities						126.02	%						128.20	%

(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 June 30, 2012 and December 31, 2011 were $217 thousand and $271 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.