Sun Bancorp, Inc. Reports Third Quarter 2010 Results

Oct 28, 2010, 20:15 ET from Sun Bancorp, Inc.

VINELAND, N.J., Oct. 28 /PRNewswire-FirstCall/ -- Sun Bancorp, Inc. (Nasdaq: SNBC) reported today a net loss available to common shareholders of $75.3 million, or a loss of $3.14 per diluted share, for the third quarter ended September 30, 2010, compared to a net loss available to common shareholders of $6.5 million, or a loss of $0.28 per diluted share, for the third quarter ended September 30, 2009. As previously reported during the quarter, the Company completed an equity investment of $106.7 million in gross proceeds from private equity funds controlled by WL Ross & Co. LLC, the Company's founding Brown family shareholders, and other institutional and accredited investors.

The following are key items which affected the results for the third quarter of 2010 as compared to the third quarter of 2009:

  • Loan loss provision of $42.4 million as compared to $16.2 million for the comparable prior year period.
  • Income tax provision of $28.8 million which included a deferred tax valuation allowance of $49.9 million against its entire net deferred tax asset.
  • $7.5 million fair value credit adjustment on customer derivatives.
  • $950,000 other-than-temporary impairment ("OTTI") charge as compared to $1.9 million for the comparable prior year period.
  • On September 22, 2010, the Company completed the sale of 4,672,750 shares of the Company's $1.00 par value common stock and 88,009 shares of the Company's $1.00 par value Series B mandatorily convertible cumulative non-voting perpetual preferred stock, with a liquidation preference of $1,000 per share, for aggregate consideration of $106.7 million in cash. 

For the nine months ended September 30, 2010, the Company reported a net loss available to common shareholders of $157.2 million, or a loss of $6.66 per diluted share, as compared to a net loss available to common shareholders of $16.1 million, or a loss of $0.70 per diluted share, for the comparable prior year period. The nine months ended September 30, 2010 included loan loss provision charges of $66.0 million and a goodwill impairment charge of $89.7 million.  The 2009 comparable period included total charges of $18.4 million as a result of the preferred shares issued and subsequently repurchased under the TARP, the FDIC 5 basis point special assessment, as well as OTTI charges.

"The financial results of this quarter reflect the continuing softening in the economy, especially in the commercial real estate and development sectors," said Thomas X. Geisel, president and chief executive officer. "As a result, borrowers cash flows continue to be impacted and collateral values have yet to consistently stabilize.  With no immediate view to an economic recovery, we have been appropriately prudent in writing down a substantial portion of the credits included here to collateral dependant status."

"We have made substantial progress strengthening our balance sheet and addressing problem assets over the past several quarters. The third quarter was no exception as we provided over $42 million for loan losses. In addition this quarter we took a valuation allowance against our deferred tax asset of $49.9 million, however with each dollar of future earning this allowance is reversed dollar for dollar back into earnings and capital," remarked Geisel. "We are fortunate to have a strong underlying business model and be well-capitalized, which allows us the opportunity to evaluate and execute on various strategies to strengthen the balance sheet, support our customers and look to future growth as we persevere through the current economic environment."

Discussion of Results:

Balance Sheet

  • Total assets were $3.60 billion at September 30, 2010, as compared to $3.51 billion at June 30, 2010 and $3.58 billion at December 31, 2009.

  • Total loans before allowance for loan losses were $2.68 billion at September 30, 2010 as compared to $2.75 billion at June 30, 2010 and $2.72 billion at December 31, 2009. Compared to linked quarter, commercial loans decreased by $53.4 million, of which $38.3 million related to charge off activity. The remaining decrease was due to reduced loan demand and a decrease in the home equity loan portfolio of $11.8 million.

  • Total deposits at September 30, 2010 equaled $3.05 billion as compared to $2.96 billion at June 30, 2010 and $2.91 billion at December 31, 2009. Interest-bearing deposits increased $83.2 million, or 3.4% over the linked quarter as interest-bearing demand deposits and certificates of deposit increased $61.2 million, or 4.8%, and $35.2 million, or 3.9%, respectively, offset by a decrease in savings deposits of $13.2 million, or 4.4%. The increases in interest-bearing demand deposits and certificates of deposit were attributable to increases in retail deposits and public funds of $21.4 million, or 1.2%, and $47.5 million, or 12.6%, over the linked quarter. In addition, non-interest-bearing demand deposits increased by $6.9 million, or 1.4%, to $503.3 million at September 30, 2010.

  • During the third quarter of 2010, the Company established a valuation allowance of $49.9 million against its entire net deferred tax asset after concluding that it was more likely than not that it would not be realized. Accordingly, this valuation allowance was recorded as income tax expense during the quarter and offset a $21 million income tax benefit recorded during the quarter that related primarily to taxes recoverable from loss carry back claims. This resulted in a net income tax provision of $28.8 million for the quarter ended September 30, 2010. 

Net Interest Income and Margin

  • On a tax equivalent basis, net interest income, decreased $374,000 over the linked quarter to $28.3 million primarily due to lower yields earned on loans and investment securities. The net interest margin was 3.47% for the third quarter, as compared to the linked quarter of 3.62% and 3.36% for the comparable prior year quarter.  

  • The yield on earning assets decreased 18 basis points over the linked quarter from 4.71% to 4.53% at September 30, 2010 due to lower yields on loans (decrease of 8 basis points to 4.76%) and investments (decrease of 30 basis points to 3.85%). Adjusted for non-accrual interest reversals during the period, the Company's net interest margin was 3.61% for the third quarter 2010, as compared to adjusted 3.74% for the linked quarter.

  • The yield on interest-bearing liabilities decreased 3 basis points over the linked quarter from 1.32% to 1.29%. The cost of interest-bearing deposits of 1.14% for the third quarter continued to trend downward in comparison to prior periods as it decreased 2 basis points from 1.16% for the linked quarter and 45 basis points from 1.59% for the comparable prior year quarter.  The interest rate spread was 3.24% for the third quarter 2010, as compared to 3.39% for the linked quarter and 3.06% for the comparable prior year quarter.

Non-Interest Income

  • Non-interest income decreased $6.8 million over the linked quarter and $6.8 million over the comparable prior year quarter resulting in a loss of $2.4 million. The decrease and loss over the linked quarter was primarily attributable to a $7.5 million fair value credit adjustment on the Company's derivative portfolio, resulting from credit deterioration of the Company's commercial loan counterparties.

  • The Company recognized a pre-tax OTTI charge during the third quarter of $950,000 related to one dividend deferring single issuer trust preferred security.

  • Gain on sale of loans increased over the linked quarter $209,000 to $921,000 due to higher mortgage loan production and sales, offset by a decrease in service charges on deposits of $175,000 attributable to lower nonsufficient funds and overdraft fees as a result of implementing revised Regulation E requirements.

 Non-Interest Expense

  • The Company incurred $29.3 million of operating non-interest expense, an increase of $1.4 million, or 4.9%, over the linked quarter and $2.5 million, or 9.2%, over the comparable prior year quarter. Third quarter results included expenses of $1.1 million of share based compensation expense related to the granting of options and restricted stock to employees and directors and $1.3 million of retirement and resignation expenses for certain board members.

Asset Quality

  • Provision expense for the third quarter was $42.4 million, an increase of $28.5 million, or 203.5%, over the linked quarter, and an increase of $26.2 million, or 161.3%, over the comparable prior year quarter. The allowance for loan losses was $74.6 million at September 30, 2010, or 2.78% of outstanding loans, as compared to the allowance for loan losses to outstanding loans of 2.69% at June 30, 2010 and 2.21% at December 31, 2009.  Net charge-offs during the third quarter were $41.6 million, or 1.52% of average loans, as compared to $3.5 million, or 0.13% of average loans for the linked quarter and $14.5 million, or 0.53% of average loans outstanding for the comparable prior year quarter. The higher provision expense was attributable to the migration of loans to higher risk categories and a higher level of charge-offs on commercial real estate collateral deficiencies due to continued weakness in the commercial real estate market. This quarter also includes a $9 million charge-off for a fraud related to one commercial relationship.  

  • Total non-performing assets were $208.8 million, or 7.77% of total loans and real estate owned, as compared to $127.0 million at June 30, 2010, or 4.62% of total loans and real estate owned and $105.4 million at December 31, 2009, or 3.86% of total loans and real estate owned. The increase in non-performing assets was primarily the result of a $72.1 million increase in non-accrual loans which was a result of significant increases in the number of relationships placed on non-accrual, including eight commercial relationships totaling $46.7 million in the aggregate. The allowance for loan losses to non-performing loans was 36.46% at September 30, 2010, as compared to 59.87% at June 30, 2010 and 62.56% at December 31, 2009. As of September 30, 2010 approximately $140 million in non-performing loans are designated as collateral dependent and have been fully charged-down to current appraised values less cost of liquidation.

 Capital

  • Stockholders' equity totaled $303.0 million at September 30, 2010 compared to $356.6 million at December 31, 2009.  On September 22, 2010, the Company completed the sale of 4,672,750 shares of the Company's $1.00 par value common stock and 88,009 shares of the Company's $1.00 par value Series B mandatorily convertible cumulative non-voting perpetual preferred stock, with a liquidation preference of $1,000 per share, for aggregate consideration of $106.7 million in cash. Each share of the Series B preferred stock will convert into shares of common stock, which will qualify as Tier 1 capital, at a conversion price of $4.00 following shareholder approval.  The Company's tangible equity to tangible assets was 7.13% at September 30, 2010, as compared to 6.43% at June 30, 2010 and 6.24% at December 31, 2009.  At September 30, 2010, the Company's total risk-based capital ratio, Tier 1 capital ratio and the leverage capital ratio were approximately 12.71%. 8.03%, and 6.68%, respectively.  At September 30, 2010, Sun National Bank's total risk-based capital ratio, Tier 1 capital ratio and the leverage capital ratio were approximately 12.04%, 10.77%, and 8.91%, respectively. 

The Company will hold its regularly scheduled conference call on Friday, October 29, 2010, at 11:00 a.m. (ET).  Participants may listen to the live Web cast through the Sun Bancorp 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 $3.6 billion asset bank holding company headquartered in Vineland, New Jersey. Its primary subsidiary is Sun National Bank, serving customers through more than 60 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 adjusted net interest margin. Adjusted net interest margin is derived from GAAP net interest income adjusted by adding back interest income that would have been earned had the loans been on accrual status.  We believe the presentation of adjusted net interest margin provides additional transparency of underlying trends.  Adjusted net interest margin for the quarters ending September 30, 2010 and June 30, 2010 is calculated by adding $1.2 million and $966,000, respectively, of non-accrual interest reversals, annualized, to interest income of $28.3 million and $28.7 million, respectively, and dividing the balance by average interest-earning assets of $3.3 billion and $3.2 billion, respectively.

SUN BANCORP, INC. AND SUBSIDIARIES

FINANCIAL HIGHLIGHTS (Unaudited)

(Dollars in thousands, except per share amounts)





For the Three Months Ended


For the Nine Months Ended





September 30,


September 30,





2010


2009


2010


2009


     Profitability for the period:









     Net interest income

$      27,886


$      26,466


$    83,689


$  72,089


     Provision for loan losses

42,429


16,237


66,007


27,187


     Non-interest (loss) income

(2,352)


4,476


7,715


11,529


     Non-interest expense

29,341


26,867


173,103


78,334


     Loss before income taxes

(46,236)


(12,162)


(147,706)


(21,903)


     Net loss

(74,993)


(6,542)


$    (156,925)


$ (10,791)


           Net loss available to common shareholders

$    (75,267)


$      (6,542)


$    (157,199)


$ (16,142)












    Financial ratios:









    Return on average assets (1)

(8.38)%


(0.73)%


(5.87)%


(0.40)%


    Return on average equity (1)

(104.19)%


(7.16)%


(62.40)%


(3.66)%


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

(126.27)%


(11.81)%


(93.03)%


(5.80)%


    Net interest margin (1)

3.47%


3.36%


3.55%


3.03%


    Efficiency ratio

114.91%


86.83%


189.38%


93.68%


    Efficiency ratio, excluding non-operating income and









      non-operating expense (3)

110.79%


81.74%


187.43%


86.67%













    Loss per common share:










Basic

$        (3.14)


$        (0.28)


$    (6.66)


$     (0.70)



Diluted

$        (3.14)


$        (0.28)


$    (6.66)


$     (0.70)













    Average equity to average assets

8.05%


10.17%


9.41%


10.88%



























September 30,


December 31,



2010


2009


2009


At period-end:







    Total assets

$ 3,603,637


$ 3,545,639


$  3,578,905


    Total deposits

3,051,894


2,932,880


2,909,268


    Loans receivable, net of allowance for loan losses

2,608,199


2,663,697


2,657,694


    Investments

479,055


428,696


457,192


    Borrowings

43,179


65,873


146,193


    Junior subordinated debentures

92,786


92,786


92,786


    Shareholders' equity

303,038


362,457


356,593









Credit quality and capital ratios:







    Allowance for loan loses to gross loans

2.78%


1.70%


2.21%


    Non-performing assets to gross loans







       and real estate owned

7.77%


3.46%


3.86%


    Allowance for loan losses to non-performing loans

36.46%


54.58%


62.56%
















    Total Capital (to risk-weighted assets) :







       Sun Bancorp, Inc.

12.71%


11.48%


11.38%


       Sun National Bank

12.04%


10.99%


10.87%


    Tier I Capital (to risk-weighted assets):







       Sun Bancorp, Inc.

8.03%


10.23%


10.12%


       Sun National Bank

10.77%


9.74%


9.61%


    Leverage Ratio:







      Sun Bancorp, Inc.

6.68%


9.21%


9.08%


      Sun National Bank

8.91%


8.78%


8.58%









    Book value per common share

$       7.62


$     15.63


$     15.29


    Tangible book value per common share

$       5.86


$       9.46


$       9.19








(1) Amounts for the three and nine 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 expense for the nine months ended September 30, 2010 excludes a goodwill impairment charge of $89.7 million. Non-interest income for the three and nine months ended September 30, 2010 exclude a net impairment loss on available for sale securities of $950,000, respectively. Non-interest income for the three and nine months ended September 30, 2010 exclude a net impairment loss on available for sale securities of $1.9 million and $6.8 million, respectively.  



SUN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)

(Dollars in thousands, except par value amounts)



September 30,

December 31,



2010

2009

ASSETS



    Cash and due from banks

$            47,207

$          53,857

    Interest earning bank balances

158,058

5,263


Cash and cash equivalents

205,265

59,120


Investment securities available for sale (amortized cost of $458,808 and $435,267 at September 30, 2010 and December 31, 2009, respectively)

460,246

434,738


Investment securities held to maturity (estimated fair value of $4,008 and $7,121 at September 30,2010 and December 31, 2009, respectively)

3,883

6,955

     Loans receivable (net of allowance for loan losses of $74,579 and $59,953 at




    September 30, 2010 and December 31, 2009, respectively)

2,608,199

2,657,694

    Restricted equity investments

14,926

15,499

    Bank properties and equipment, net

53,331

53,246

    Real estate owned

4,272

9,527

    Accrued interest receivable

10,794

12,235

    Goodwill

38,188

127,894

    Intangible assets, net

11,552

14,316

    Deferred tax assets, net

-

20,721

    Bank owned life insurance (BOLI)

74,204

77,753

    Other assets

118,777

89,207


    Total assets

$       3,603,637

$     3,578,905

LIABILITIES AND SHAREHOLDERS' EQUITY



Liabilities:



    Deposits

$       3,051,894

$     2,909,268

    Federal funds purchased

-

89,000

    Securities sold under agreements to repurchase - customers

15,702

18,677

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

4,308

15,215

    Securities sold under agreements to repurchase - FHLBNY

15,000

15,000

    Obligations under capital lease

8,169

8,301

    Junior subordinated debentures

92,786

92,786

    Deferred tax liabilities, net

293

-

    Other liabilities

112,447

74,065


    Total liabilities

3,300,599

3,222,312





Shareholder's equity:



    Preferred stock, $1 par value, 1,000,000 shares authorized, 88,009 shares of



    Series B convertible perpetual stock; liquidation value $1,000 per share,



    issued and outstanding at September 30, 2010

88,009

-

    Common stock, $1 par value, 50,000,000 shares authorized; 30,333,183 shares



    issued and 28,226,460 shares outstanding at September 30, 2010; 25,435,994



    shares issued and 23,329,271 shares outstanding at December 31, 2009

30,333

25,436

    Additional paid in capital

371,450

362,189

    Retained deficit

(161,522)

(4,597)

    Accumulated other comprehensive gain (loss)

1,144

(149)

    Deferred compensation plan trust

(214)

(124)

    Treasury stock at cost, 2,106,723 shares at September 30, 2010 and December 31, 2009    

(26,162)

(26,162)


    Total shareholders' equity

303,038

356,593


    Total liabilities and shareholders' equity

$       3,603,637

$     3,578,905



SUN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

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


For the Three Months Ended


For the Nine Months Ended


September 30,


September 30,


2010

2009


2010

2009

INTEREST INCOME










Interest and fees on loans


$  32,664


$ 33,299



$    97,976


$  98,487

Interest on taxable investment securities


2,963


3,405



9,002


11,341

Interest on non-taxable investment securities


741


969



2,634


2,695

Dividends on restricted equity investments


204


219



637


609

       Total interest income


36,572


37,892



110,249


113,132

INTEREST EXPENSE










Interest on deposits


7,260


9,797



22,123


36,132

Interest on funds borrowed


372


548



1,352


1,511

Interest on junior subordinated debentures


1,054


1,081



3,085


3,400

       Total interest expense


8,686


11,426



26,560


41,043

Net interest income


27,886


26,466



83,689


72,089

PROVISION FOR LOAN LOSSES


42,429


16,237



66,007


27,187

    Net interest (loss) income after provision for loan losses


(14,543)


10,229



17,682


44,902

NON-INTEREST INCOME










Service charges on deposit accounts


2,869


3,150



8,857


9,290

Other service charges


92


85



270


246

Gain on sale of loans


921


711



2,236


1,749

Gain on derivative instruments


-


-



-


212

Investment products income


708


894



2,103


2,172

BOLI income


545


575



1,622


1,649

Net impairment losses on available for sale securities:










Total impairement losses

(4,005)


(1,928)



(4,005)


(6,764)


Portion of loss recognized in other comprehensive income (before taxes)

3,055


-



3,055


-


     Net impairment losses recognized in earnings


(950)


(1,928)



(950)


(6,764)

Derivative credit adjustment


(7,498)


(45)



(9,509)


25

Other income


961


1,034



3,086


2,950

Total non-interest (loss) income


(2,352)


4,476



7,715


11,529

NON-INTEREST EXPENSE










Salaries and employee benefits


15,079


14,154



42,299


39,333

Occupancy expense


3,030


2,689



9,465


8,606

Equipment expense


1,663


1,619



5,149


4,842

Data processing expense


1,039


980



3,226


3,042

Amortization of intangible assets


922


1,177



2,764


3,532

Goodwill impairment


-


-



89,706


-

Insurance expense


2,105


1,519



5,632


6,292

Professional fees


461


595



1,504


1,480

Advertising expense


833


251



1,945


1,667

Real estate owned expense, net


93


854



403


1,127

Other


4,116


3,029



11,010


8,413

Total non-interest expense


29,341


26,867



173,103


78,334

LOSS BEFORE INCOME TAXES


(46,236)


(12,162)



(147,706)


(21,903)

INCOME TAX EXPENSE (BENEFIT)


28,757


(5,620)



9,219


(11,112)

NET LOSS


(74,993)


(6,542)



(156,925)


(10,791)

  Preferrred stock dividends and discount accretion


274


-



274


5,351

NET LOSS AVAILABLE TO COMMON SHAREHOLDERS


$ (75,267)


$ (6,542)



$ (157,199)


$ (16,142)











Basic loss per share


$     (3.14)


$   (0.28)



$       (6.66)


$     (0.70)

Diluted loss per share


$     (3.14)


$   (0.28)



$       (6.66)


$     (0.70)

Weighted average shares-basic

23,960,691

23,162,992


23,587,981

23,104,419

Weighted average shares-diluted

23,960,691

23,162,992


23,587,981

23,104,419



SUN BANCORP, INC. AND SUBSIDIARIES

HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)

(Dollars in thousands)












2010

2010

2010

2009

2009




Q3

Q2

Q1

Q4

Q3

Balance Sheet at quarter end:






   Cash and cash equivalents

$    205,265

$      52,810

$      52,570

$      59,120

$      60,524

    Investment securities

479,055

428,362

430,104

457,192

428,696

    Loans:







  Commercial and industrial

2,235,715

2,289,148

2,238,967

2,249,365

2,234,616


  Home equity lines of credit

244,274

252,425

257,368

258,592

261,206


  Home equity term loans

58,305

61,941

65,857

68,592

71,578


  Residential real estate

85,554

79,034

71,452

75,322

72,292


  Other

58,930

62,956

63,924

65,776

70,072



    Total gross loans

2,682,778

2,745,504

2,697,568

2,717,647

2,709,764

    Allowance for loan losses

(74,579)

(73,752)

(63,292)

(59,953)

(46,067)



    Net loans

2,608,199

2,671,752

2,634,276

2,657,694

2,663,697

    Goodwill

38,188

38,188

127,894

127,894

127,894

    Intangible assets, net

11,552

12,474

13,395

14,316

15,237

    Total assets

3,603,637

3,512,310

3,531,998

3,578,905

3,545,639

    Total deposits

3,051,894

2,961,816

2,924,815

2,909,268

2,932,880

    Federal funds purchased

-

37,000

25,000

89,000

6,000

    Securities sold under agreements to repurchase-customers

15,702

17,156

15,767

18,677

21,018

    Advances from FHLBNY

4,308

4,613

14,916

15,215

15,512

    Securities sold under agreements to repurchase- FHLBNY

15,000

15,000

15,000

15,000

15,000

    Obligations under capital lease

8,169

8,217

8,260

8,301

8,343

    Junior subordinated debentures

92,786

92,786

92,786

92,786

92,786

    Total shareholders' equity

303,038

273,161

356,129

356,593

362,457

Quarterly average balance sheet:






    Loans:







  Commercial and industrial

$ 2,292,274

$ 2,262,656

$ 2,241,443

$ 2,238,579

$ 2,247,234


  Home equity lines of credit

250,033

256,697

258,359

260,382

263,494


  Home equity term loans

60,729

64,051

67,435

69,844

72,830


  Residential real estate

82,094

74,427

73,333

75,890

76,626


  Other

59,998

62,249

63,804

66,698

70,790



    Total gross loans

2,745,128

2,720,080

2,704,374

2,711,393

2,730,974

    Securities and other interest-earning assets

518,262

450,947

459,309

433,706

486,274

    Total interest-earning assets

3,263,390

3,171,027

3,163,683

3,145,099

3,217,248

    Total assets

3,578,296

3,554,630

3,554,244

3,590,339

3,593,037

    Non-interest-bearing demand deposits

505,036

471,033

440,860

480,080

476,478

    Total deposits

3,043,268

2,957,970

2,919,477

2,886,322

2,946,281

    Total interest-bearing liabilities

2,683,915

2,640,155

2,672,746

2,652,540

2,663,226

    Total shareholders' equity

287,897

358,300

360,475

364,530

365,440









Capital and credit quality measures:






    Total Capital (to risk-weighted assets):







    Sun Bancorp, Inc.

12.71%

11.09%

11.49%

11.38%

11.48%


    Sun National Bank

12.04%

10.64%

10.99%

10.87%

10.99%

    Tier I Capital (to risk-weighted assets):







    Sun Bancorp, Inc.

8.03%

9.82%

10.23%

10.12%

10.23%


    Sun National Bank

10.77%

9.37%

9.73%

9.61%

9.74%

    Leverage Ratio:







    Sun Bancorp, Inc.

6.68%

8.60%

9.21%

9.08%

9.21%


    Sun National Bank

8.91%

8.22%

8.80%

8.58%

8.78%









    Average equity to average assets

8.05%

10.08%

10.14%

10.15%

10.17%

    Allowance for loan losses to total gross loans

2.78%

2.69%

2.35%

2.21%

1.70%

    Non-performing assets to total gross loans and real estate







  owned

7.77%

4.62%

3.32%

3.86%

3.46%

    Allowance for loan losses to non-performing loans

36.46%

59.87%

73.53%

62.56%

54.58%









Other data:






    Net charge-offs

$    (41,602)

$      (3,518)

$      (6,261)

$      (5,593)

$    (14,486)

    Non-performing assets:







    Non-accrual loans

192,769

120,685

78,403

87,882

80,333


    Loans past due 90 days and accruing

11,802

2,500

7,678

7,958

4,067


    Real estate owned, net

4,272

3,828

3,688

9,527

9,667


       Total non-performing assets

208,843

127,013

89,769

105,367

94,067


    Troubled debt restructuring, performing

$      20,396

$      19,161

$      19,353

$     -

$     -



SUN BANCORP, INC. AND SUBSIDIARIES

HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)

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








2010

2010

2010

2009

2009


Q3

Q2

Q1

Q4

Q3

Profitability for the quarter:






    Tax-equivalent interest income

$      36,971

$      37,349

$      37,347

$      38,425

$      38,413

    Interest expense

8,686

8,690

9,184

9,799

11,426

        Tax-equivalent net interest income

28,285

28,659

28,163

28,626

26,987

        Tax-equivalent adjustment

399

479

540

558

521

    Provision for loan losses

42,429

13,978

9,600

19,479

16,237

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

(1,402)

4,416

5,651

5,892

6,404

    Net impairment losses on available for sale securities

(950)

-

-

(351)

(1,928)

   Non-interest expense excluding amortization of intangible assets and goodwill impairment

28,419

27,060

25,155

24,812

25,690

    Amortization of intangible assets and goodwill impairment

922

90,627

921

921

1,177

    Loss before income taxes

(46,236)

(99,068)

(2,402)

(11,603)

(12,162)

    Income tax expense (benefit)

28,757

(17,898)

(1,640)

(5,263)

(5,620)

    Net loss

(74,993)

(81,170)

(762)

(6,340)

(6,542)

    Net loss available to common shareholders

$    (75,267)

$    (81,170)

$         (762)

$      (6,340)

$      (6,542)

Financial ratios:






    Return on average assets (1)

(8.38)%

(9.13)%

(0.09)%

(0.71)%

(0.73)%

    Return on average equity (1)

(104.19)%

(90.62)%

(0.85)%

(6.96)%

(7.16)%

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

(126.27)%

(148.70)%

(1.39)%

(11.44)%

(11.81)%

    Net interest margin (1)

3.47%

3.62%

3.56%

3.64%

3.36%

    Efficiency ratio

114.91%

361.04%

78.37%

76.57%

86.83%

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

110.79%

85.84%

78.37%

75.77%

81.74%

    Per share data :






       Loss per common share:






           Basic

$        (3.14)

$        (3.46)

$        (0.03)

$        (0.27)

$        (0.28)

           Diluted

$        (3.14)

$        (3.46)

$        (0.03)

$        (0.27)

$        (0.28)

          Book value

$          7.62

$        11.63

$        15.22

$        15.29

$        15.63

          Tangible book value

$          5.86

$          9.48

$          9.18

$          9.19

$          9.46

    Average basic shares

23,960,691

23,431,305

23,365,406

23,223,463

23,162,992

    Average diluted shares

23,960,691

23,431,305

23,365,406

23,223,463

23,162,992

Operating non-interest income:






    Service charges on deposit accounts

$        2,869

$        3,044

$        2,944

$        3,150

$        3,150

    Other service charges

92

99

79

85

85

    Gain on sale of loans

921

712

603

603

711

    Gain on derivative instruments

-

-

-

50

-

    Investment products income

708

792

603

497

894

    BOLI income

545

539

538

600

575

    Derivative credit valuation adjustment

(7,498)

(1,980)

(31)

(78)

(45)

    Other

961

1,210

915

985

1,034

       Total operating non-interest (loss) income

(1,402)

4,416

5,651

5,892

6,404

Non-operating loss(3):






    Net impairment losses on available for sale securities






      recognized in earnings

(950)

-

-

(351)

(1,928)

       Total non-operating losses

(950)

-

-

(351)

(1,928)

       Total non-interest (loss) income

$      (2,352)

$        4,416

$        5,651

$        5,541

$        4,476

Operating non-interest expense:






    Salaries and employee benefits

$      15,079

$      14,361

$      12,859

$      12,440

$      14,154

    Occupancy expense

3,030

2,895

3,540

2,911

2,689

    Equipment expense

1,663

1,750

1,736

1,732

1,619

    Data processing expense

1,039

1,101

1,086

1,021

980

    Amortization of intangible assets

922

921

921

921

1,177

    Insurance expense

2,105

2,020

1,507

1,512

1,519

    Professional fees

461

459

584

713

595

    Advertising expense

833

532

580

786

251

    Real estate owned expense, net

93

94

216

28

854

    Other

4,116

3,847

3,047

3,669

3,029

        Total operating non-interest expense

29,341

27,980

26,076

25,733

26,867

Non-operating expense:






    Goodwill impairment

-

89,706

-

-

-

        Total non-operating expense:

-

89,706

-

-

-

        Total non-interest expense

$      29,341

$    117,686

$      26,076

$      25,733

$      26,867

(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 SHEET (Unaudited)

(Dollars in thousands)



For the Three Months Ended



For the Three Months Ended




September 30, 2010



September 30, 2009




Average





Average






Balance

Income/Expense

Yield/Cost



Balance

Income/Expense

Yield/Cost


Interest-earning assets:










    Loans receivable (1), (2)











  Commercial and industrial

$ 2,292,274

$ 26,620

4.65

%


$ 2,247,234

$ 26,590

4.73

%


  Home equity lines of credit

250,033

2,921

4.67



263,494

3,248

4.93



  Home equity term loans

60,729

932

6.14



72,830

1,182

6.49



  Residential real estate

82,094

1,160

5.65



76,626

1,099

5.74



  Other

59,998

1,031

6.87



70,790

1,180

6.67



    Total loans receivable

2,745,128

32,664

4.76



2,730,974

33,299

4.88


    Investment securities (3)

443,203

4,261

3.85



439,661

5,091

4.63


    Interest-earning deposits with banks

75,059

46

0.25



46,613

23

0.20



    Total interest-earning assets

3,263,390

36,971

4.53



3,217,248

38,413

4.78


Non-interest-earning assets:










    Cash and due from banks

51,660





46,724




    Bank properties and equipment, net

52,962





52,058




    Goodwill and intangible assets, net

50,324





143,868




    Other assets

159,960





133,139




         Total non-interest-earning assets

314,906





375,789




         Total assets

$ 3,578,296





$ 3,593,037















Interest-bearing liabilities:










    Interest-bearing deposit accounts:










       Interest-bearing demand deposits

$ 1,325,084

2,706

0.82

%


$ 1,112,999

2,658

0.96

%

       Savings deposits

293,744

550

0.75



299,590

693

0.93


       Time deposits

919,404

4,004

1.74



1,057,214

6,446

2.44



    Total interest-bearing deposit accounts

2,538,232

7,260

1.14



2,469,803

9,797

1.59


    Short-term borrowings:











  Federal funds purchased

6,288

5

0.32



42,836

36

0.34



  Securities sold under agreements to  repurchase - customers

19,003

9

0.19



18,823

12

0.26




Long-term borrowings:











  FHLBNY advances (4)

19,412

222

4.57



30,607

361

4.72



  Obligations under capital lease

8,194

136

6.64



8,371

139

6.64



  Junior subordinated debentures

92,786

1,054

4.54



92,786

1,081

4.66



    Total borrowings

145,683

1,426

3.92



193,423

1,629

3.37



    Total interest-bearing liabilities

2,683,915

8,686

1.29



2,663,226

11,426

1.72


Non-interest-bearing liabilities:










  Non-interest-bearing demand deposits

505,036





476,478




  Other liabilities

101,448





87,893





   Total non-interest bearing liabilities

606,484





564,371





   Total liabilities

3,290,399





3,227,597




Shareholders' equity

287,897





365,440





   Total liabilities and stockholders' equity

$ 3,578,296





$ 3,593,037















Net interest income


$ 28,285





$ 26,987



Interest rate spread (5)



3.24

%




3.06

%

Net interest margin (6)



3.47

%




3.36

%

Ratio of average interest-earning assets










 to average interest-bearing liabilities



121.59

%




120.80

%


(1) Average balances include non-accrual loans.

(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 adjustment for the three months ended September 30, 2010 and 2009 was $399,000 and $521,000, 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 SHEET (Unaudited)

(Dollars in thousands)



For the Nine Months Ended



For the Nine Months Ended




September 30, 2010



September 30, 2009




Average





Average






Balance

Income/Expense

Yield/Cost



Balance

Income/Expense

Yield/Cost


Interest-earning assets:










    Loans receivable (1), (2)











  Commercial and industrial

$ 2,265,644

$ 79,555

4.68

%


$ 2,237,732

$ 77,774

4.63

%


  Home equity lines of credit

254,999

8,969

4.69



266,878

10,080

5.04



  Home equity term loans

64,047

3,020

6.29



76,851

3,715

6.45



  Residential real estate

76,650

3,236

5.63



74,456

3,264

5.85



  Other

62,003

3,196

6.87



75,051

3,654

6.49



    Total loans receivable

2,723,343

97,976

4.80



2,730,968

98,487

4.81


    Investment securities (3)

439,147

13,629

4.14



450,572

16,015

4.74


    Interest-earning deposits with banks

37,242

62

0.22



50,799

81

0.21


    Federal funds sold

-

-

-



125

-

-



    Total interest-earning assets

3,199,732

111,667

4.65



3,232,464

114,583

4.73


Non-interest-earning assets:










    Cash and due from banks

47,359





48,203




    Bank properties and equipment, net

52,919





49,637




    Goodwill and intangible assets, net

110,380





145,028




    Other assets

152,088





140,904




         Total non-interest-earning assets

362,746





383,772




         Total assets

$ 3,562,478





$ 3,616,236















Interest-bearing liabilities:










    Interest-bearing deposit accounts:










       Interest-bearing demand deposits

$ 1,287,747

8,112

0.84

%


$ 1,038,932

7,969

1.02

%

       Savings deposits

299,745

1,772

0.79



297,404

2,264

1.02


       Time deposits

913,988

12,239

1.79



1,180,923

25,899

2.92



    Total interest-bearing deposit accounts

2,501,480

22,123

1.18



2,517,259

36,132

1.91


    Short-term borrowings:











  Federal funds purchased

22,604

89

0.52



21,154

61

0.38



  Securities sold under agreements to repurchase - customers

16,612

22

0.18



17,151

32

0.25




Long-term borrowings:











  FHLBNY advances (4)

23,926

829

4.62



32,805

1,090

4.43



  Obligations under capital lease

8,238

412

6.67



6,271

328

6.97



  Junior subordinated debentures

92,786

3,085

4.43



92,786

3,400

4.89



    Total borrowings

164,166

4,437

3.60



170,167

4,911

3.85



    Total interest-bearing liabilities

2,665,646

26,560

1.33



2,687,426

41,043

2.04


Non-interest-bearing liabilities:










  Non-interest-bearing demand deposits

472,545





434,474




  Other liabilities

88,996





100,069





   Total non-interest bearing liabilities

561,541





535,543





   Total liabilities

3,227,187





3,222,969




Shareholders' equity

335,291





393,267





   Total liabilities and stockholders' equity

$ 3,562,478





$ 3,615,236















Net interest income


$ 85,107





$ 73,540



Interest rate spread (5)



3.32

%




2.69

%

Net interest margin (6)



3.55

%




3.03

%

Ratio of average interest-earning assets










 to average interest-bearing liabilities



120.04

%




120.28

%













(1) Average balances include non-accrual loans.

(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 adjustment for the nine months ended September 30, 2010 and 2009 was $1.4 million and $1.5 million, 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 SHEET (Unaudited)

(Dollars in thousands)



For the Three Months Ended



For the Three Months Ended




September 30, 2010



June 30, 2010




Average





Average






Balance

Income/Expense

Yield/Cost



Balance

Income/Expense

Yield/Cost


Interest-earning assets:










    Loans receivable (1), (2)











  Commercial and industrial

$ 2,292,274

$ 26,620

4.65

%


$ 2,262,656

$ 26,770

4.73

%


  Home equity lines of credit

250,033

2,921

4.67



256,697

3,016

4.70



  Home equity term loans

60,729

932

6.14



64,051

1,025

6.40



  Residential real estate

82,094

1,160

5.65



74,427

1,057

5.68



  Other

59,998

1,031

6.87



62,249

1,058

6.80



    Total loans receivable

2,745,128

32,664

4.76



2,720,080

32,926

4.84


    Investment securities (3)

443,203

4,261

3.85



424,617

4,410

4.15


    Interest-earning deposits with banks

75,059

46

0.25



26,330

13

0.20



    Total interest-earning assets

3,263,390

36,971

4.53



3,174,027

37,349

4.71


Non-interest-earning assets:










    Cash and due from banks

51,660





45,153




    Bank properties and equipment, net

52,962





52,715




    Goodwill and intangible assets, net

50,324





139,961




    Other assets

159,960





145,774




         Total non-interest-earning assets

314,906





383,603




         Total assets

$ 3,578,296





$ 3,554,630















Interest-bearing liabilities:










    Interest-bearing deposit accounts:










       Interest-bearing demand deposits

$ 1,325,084

2,706

0.82

%


$ 1,276,627

2,625

0.82

%

       Savings deposits

293,744

550

0.75



304,273

572

0.75


       Time deposits

919,404

4,004

1.74



906,037

4,039

1.78



    Total interest-bearing deposit accounts

2,538,232

7,260

1.14



2,486,937

7,236

1.16


    Short-term borrowings:











  Federal funds purchased

6,288

5

0.32



14,423

21

0.58



  Securities sold under agreements to repurchase - customers

19,003

9

0.19



15,307

8

0.21




Long-term borrowings:











  FHLBNY advances (4)

19,412

222

4.57



22,464

265

4.72



  Obligations under capital lease

8,194

136

6.64



8,238

137

6.65



  Junior subordinated debentures

92,786

1,054

4.54



92,786

1,023

4.41



    Total borrowings

145,683

1,426

3.92



153,218

1,454

3.80



    Total interest-bearing liabilities

2,683,915

8,686

1.29



2,640,155

8,690

1.32


Non-interest-bearing liabilities:










  Non-interest-bearing demand deposits

505,036





471,033




  Other liabilities

101,448





85,142





   Total non-interest bearing liabilities

606,484





556,175





   Total liabilities

3,290,399





3,196,330




Shareholders' equity

287,897





358,300





   Total liabilities and stockholders' equity

$ 3,578,296





$ 3,554,630















Net interest income


$ 28,285





$ 28,659



Interest rate spread (5)



3.24

%




3.39

%

Net interest margin (6)



3.47

%




3.62

%

Ratio of average interest-earning assets










 to average interest-bearing liabilities



121.59

%




120.11

%













(1) Average balances include non-accrual loans.

(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 adjustment for the three months ended September 30, 2010 and 2009 was $399,000 and $479,000, 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.



SOURCE Sun Bancorp, Inc.



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