Sun Bancorp (SNBC) 8-K Sun Bancorp, Inc. Reports Third Quarter 2011 Results

News Release

For Immediate Release

Contact:  Robert B. Crowl, EVP, Chief Financial Officer (856) 691-7700

Sun Bancorp, Inc. Reports Third Quarter 2011 Results

VINELAND, NJ – October 25, 2011 – Sun Bancorp, Inc. (NASDAQ: SNBC) reported today 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, compared to 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 and a net loss available to common shareholders of $1.6 million, or a loss of $0.02 per diluted share, for the second quarter ended June 30, 2011.

The following are key items and events that occurred during the third quarter 2011 as compared to the second quarter 2011:

● Net interest margin rose to 3.61% from 3.59% in the linked quarter due to reduction in funding costs.

● Provision expense decreased 52% to $2.3 million as compared to $4.8 million in the linked quarter as the Company has worked to reduce its criticized and classified loan exposure.

● Non-interest expense decreased $1.3 million compared to the second quarter primarily due to a reduction in advertising expense of $927,000 and reduced problem loan and real estate owned expenses of $544,000.

● Non-accrual loans decreased $5.0 million to $135.2 million at September 30, 2011 as compared to $140.2 million at June 30, 2011. The Company’s ongoing efforts to aggressively manage its impaired loan portfolio have been successful as evidenced by continued declines in non-accrual loans.

● Received an additional $6.8 million in stock proceeds during the third quarter of 2011 pursuant to the exercise of gross-up provisions contained in the security purchases agreements executed during the first quarter of 2011.

“This quarter’s results demonstrate the convergence of positive trends in both credit and operating performance, and we are motivated by the progress we have made in restoring profit to Sun,” said Thomas X. Geisel, Sun's President and Chief Executive Officer.  “The quality of our assets continues to improve, our capital position remains strong and our employees continue to provide a high level of customer service.  We are encouraged, yet not satisfied, by this improvement, but we are optimistic about building upon these results.”

Discussion of Results:

Balance Sheet

● Total assets were $3.24 billion at September 30, 2011, as compared to $3.21 billion at June 30, 2011 and $3.42 billion at December 31, 2010.

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● Gross loans held-for-investment were $2.31 billion at September 30, 2011, as compared to $2.32 billion at June 30, 2011 and $2.52 billion at December 31, 2010. Compared to the linked quarter, loans held-for-investment decreased by $10.2 million.

● Gross loans held-for-sale increased $354,000 from the linked quarter to $20.9 million at September 30, 2011.

● Shareholders’ equity increased $9.2 million to $308.0 million at September 30, 2011 as compared to the linked quarter. This increase was primarily attributable to the $6.8 million in stock proceeds received from the exercise of gross-up provisions and net income of $2.7 million.

Net Interest Income and Margin

● On a tax equivalent basis, net interest income decreased $387,000 over the linked quarter to $26.5 million. The average cost of interest-bearing liabilities decreased four basis points to 0.92%. The average yield on interest-earning assets decreased three basis points over the linked quarter from 4.36% to 4.33%. The net interest margin continued its upward trend to 3.61% for the third quarter as compared to 3.59% for the linked quarter and 3.47% for the comparable prior year quarter.

Non-Interest Income

● Non-interest income was $5.8 million for the quarter ended September 30, 2011, an increase of $777,000 over the linked quarter of $5.0 million and $7.2 million over the comparable prior year quarter loss of $1.4 million. The increase over the linked quarter was primarily attributable to a decrease of $3.3 million of derivative  credit valuation adjustments taken on the Company’s derivative portfolio offset by the decrease of $2.4 million of gains on the sale of available for sale securities.

Non-Interest Expense

● The Company incurred $27.0 million of non-interest expense in the third quarter of 2011, a decrease of $1.3 million over the linked quarter and $2.4 million over the comparable prior year quarter. Advertising expense, problem loan expense, professional fees and occupancy expense decreased $927,000, $357,000, $336,000, and $284,000, respectively. Offsetting these decreases was an increase of $734,000 in salaries and employee benefits due to a severance accrual resulting from the elimination of the chief operating officer position and increased health insurance claims.

Asset Quality

● The provision for loan losses for the third quarter was $2.3 million, as compared to $4.8 million in the linked quarter and $42.4 million in the comparable prior year quarter. The allowance for loan losses was $55.2 million at September 30, 2011, or 2.39% of gross loans held-for-investment, as compared to the allowance for loan losses to gross loans held-for-investment of 2.52% at June 30, 2011 and 3.24% at December 31, 2010.  Net charge-offs recorded in the current quarter were $5.8 million, or 0.25% of average loans, as compared to $5.0 million, or 0.21% of average loans for the linked quarter and $41.6 million, or 1.52% of average loans outstanding for the comparable prior year quarter.

● Total non-performing assets were $140.8 million, or 6.04% of total gross loans held-for-investment, loans held-for-sale and real estate owned at September 30, 2011, as compared to $143.5 million, or 6.13% and $177.7 million, or 7.00%, respectively, at June 30, 2011 and December 31, 2010. Non-performing assets at September 30, 2011 included $5.2 million of loans held-for-sale. Non-performing loans decreased $4.2 million over the linked quarter to $135.9 million at September 30, 2011 from $140.2 million at June 30, 2011.

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Capital

● Stockholders’ equity totaled $308.1 million at September 30, 2011 compared to $298.8 million at June 30, 2011. During the third quarter 2011, the Company received an additional $6.8 million in stock proceeds pursuant to the exercise of gross-up provisions contained in the security purchase agreements executed during the first quarter of 2011. The Company’s tangible equity to tangible assets ratio was 8.21% at September 30, 2011, as compared to 7.95% at June 30, 2011 and 7.13% at September 30, 2010.  At September 30, 2011, the Company’s total risk-based capital ratio, Tier 1 capital ratio and leverage capital ratio were approximately 14.85%, 13.59%, and 11.08%, respectively.  At September 30, 2011, Sun National Bank’s total risk-based capital ratio, Tier 1 capital ratio and leverage capital ratio were approximately 13.07%, 11.81%, and 9.64%, respectively. 

The Company will hold its regularly scheduled conference call on Wednesday, October 26, 2011, 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 $3.24 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 September 30, 2011 and 2010 were $292,000 and $399,000, respectively. The fully taxable equivalent adjustments for the nine months ended September 30, 2011 and 2010 were $1.1 million and $1.4 million, respectively. The fully taxable equivalent adjustment for the three months ended June 30, 2011 was $368,000. Non-operating income and non-operating expense are also non-GAAP financial measures. Non-operating income includes impairment losses recognized on available for sale securities included in earnings. Non-operating income for the three months ended March 31, 2011, December 31, 2010, and September 30, 2010 was $250,000, $379,000 and $950,000, respectively. There were no non-operating income items during the three months ended September 30, 2011 and 2010. Non-operating expense for the nine months ended September 30, 2010 includes a goodwill impairment charge of $89.7 million.

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SUN BANCORP, INC. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS (Unaudited)
(Dollars in thousands, except per share amounts)
	For the Three Months										For the Nine Months
	Ended September 30,										Ended September 30,
		2011				2010					2011							2010
Profitability for the period:
Net interest income		$	26,181			$		27,886			$				77,799			$	83,689
Provision for loan losses			2,321					42,429							67,440				66,007
Non-interest income (loss)			5,770					(2,352		)					6,664				7,715
Non-interest expense			26,973					29,341							82,999				173,103
Income (loss) before income taxes			2,657					(46,236		)					(65,976		)		(147,706		)
Net income (loss)			2,680					(74,993		)					(65,986		)		(156,925		)
Net income (loss) available to common shareholders		$	2,680			$		(75,267		)	$				(65,986		)	$	(157,199		)
Financial ratios:
Return on average assets(1)			0.33	%				(8.38)		%					(2.66)		%		(5.87)		%
Return on average equity(1)			3.48	%				(104.19)		%					(29.80)		%		(62.40)		%
Return on average tangible equity(1),(2)			4.10	%				(126.27)		%					(35.51)		%		(93.03)		%
Net interest margin(1)			3.61	%				3.47		%					3.49		%		3.55		%
Efficiency ratio			84.42	%				114.91		%					98.27		%		189.38		%
Efficiency ratio, excluding non-operating income and non-operating expense(3)			84.42	%				110.79		%					97.98		%		90.30		%
Income (loss) per common share:
Basic		$	0.03			$		(3.14		)	$				(0.90		)	$	(6.66		)
Diluted		$	0.03			$		(3.14		)	$				(0.90		)	$	(6.66		)
Average equity to average assets			9.52	%				8.05		%					8.93		%		9.41		%
		September 30,											December 31,
		2011			2010								2010
At period-end:
Total assets		$	3,236,219				$		3,603,637					$		3,417,546
Total deposits			2,727,650						3,051,894							2,940,460
Loans receivable, net of allowance for loan losses			2,251,176						2,591,583							2,439,633
Loans held-for-sale(4)			20,868						16,616							13,824
Investments			557,380						479,055							493,493
Borrowings			32,010						43,179							33,417
Junior subordinated debentures			92,786						92,786							92,786
Shareholders’ equity			308,055						303,038							268,242
Credit quality and capital ratios:
Allowance for loan losses to gross loans held-for-investment			2.39		%				2.80			%				3.24				%
Non-performing assets to gross loans held-for-investment, loans held-for-sale and real estate owned			6.04		%				7.77			%				7.00				%
Allowance for loan losses to non-performing loans held-for-investment			42.23		%				36.46			%				47.02				%
Total capital (to risk-weighted assets):
Sun Bancorp, Inc.			14.85		%				12.92			%				12.68				%
Sun National Bank			13.07		%				12.04			%				12.25				%
Tier 1 capital (to risk-weighted assets):
Sun Bancorp, Inc.			13.59		%				8.02			%				11.41				%
Sun National Bank			11.81		%				10.77			%				10.98				%
Leverage ratio:
Sun Bancorp, Inc.			11.08		%				6.67			%				8.93				%
Sun National Bank			9.64		%				8.91			%				8.57				%
Book value per common share		$	3.60				$		7.62					$		5.33
Tangible book value per common share		$	3.06				$		5.86					$		4.36
(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 income for the nine months ended September 30, 2011 excludes net impairment losses on available for sale securities of $250,000. 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. Non-interest expense for the nine months ended September 30, 2010 excludes a goodwill impairment charge of $89.7 million.
(4) Amount at September 30, 2011 includes $5.2 million of commercial real estate loans marked at fair value.

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SUN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
(Dollars in thousands, except par value amounts)
	September 30, 2011			December 31, 2010
ASSETS
Cash and due from banks	$	73,006		$	36,522
Interest-earning bank balances		61,203			150,704
Cash and cash equivalents		134,209			187,226
Investment securities trading (amortized cost of $4,970 at September 30, 2011)		5,138			-
Investment securities available for sale (amortized cost of $536,817 and $483,255 at September 30, 2011 and December 31, 2010, respectively)		534,768			472,864
Investment securities held to maturity (estimated fair value of $1,787 and $3,155 at September 30, 2011 and December 31, 2010, respectively)		1,714			3,039
Loans receivable (net of allowance for loan losses of $55,227 and $81,713 at September 30, 2011 and December 31, 2010, respectively)		2,251,176			2,439,633
Loans held-for-sale		20,868			13,824
Restricted equity investments		15,760			17,590
Bank properties and equipment, net		55,544			53,428
Real estate owned		4,893			3,913
Accrued interest receivable		8,692			10,004
Goodwill		38,188			38,188
Intangible assets		7,868			10,631
Deferred taxes, net		837			4,245
Bank owned life insurance (BOLI)		74,752			74,656
Other assets		81,812			88,305
Total assets	$	3,236,219		$	3,417,546
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits	$	2,727,650		$	2,940,460
Securities sold under agreements to repurchase – customers		6,026			6,307
Advances from the Federal Home Loan Bank of New York (FHLBNY)		3,054			3,999
Securities sold under agreements to repurchase – FHLBNY		15,000			15,000
Obligations under capital lease		7,930			8,111
Junior subordinated debentures		92,786			92,786
Other liabilities		75,718			82,641
Total liabilities		2,928,164			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; 87,642,852 shares issued and 85,536,129 shares outstanding at September 30, 2011; 52,463,594 shares issued and 50,356,871 shares outstanding at December 31, 2010		87,643			52,464
Additional paid-in capital		503,938			438,335
Retained deficit		(256,001	)		(190,015	)
Accumulated other comprehensive loss		(1,212	)		(6,146	)
Deferred compensation plan trust		(151	)		(234	)
Treasury stock at cost, 2,106,723 shares at  September 30, 2011 and December 31, 2010		(26,162	)		(26,162	)
Total shareholders’ equity		308,055			268,242
Total liabilities and shareholders’ equity	$	3,236,219		$	3,417,546

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SUN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in thousands, except per share amounts)
		For the Three Months Ended September 30,						For the Nine Months Ended September 30,
		2011			2010			2011			2010
INTEREST INCOME
Interest and fees on loans	$	28,149		$	32,664		$	85,115		$	97,976
Interest on taxable investment securities		2,603			2,963			8,086			9,002
Interest on non-taxable investment securities		542			741			1,984			2,634
Dividends on restricted equity investments		216			204			679			637
Total interest income		31,510			36,572			95,864			110,249
INTEREST EXPENSE
Interest on deposits		4,298			7,260			14,696			22,123
Interest on funds borrowed		356			372			1,067			1,352
Interest on junior subordinated debentures		675			1,054			2,302			3,085
Total interest expense		5,329			8,686			18,065			26,560
Net interest income		26,181			27,886			77,799			83,689
PROVISION FOR LOAN LOSSES		2,321			42,429			67,440			66,007
Net Interest income (loss) after provision for loan losses		23,860			(14,543	)		10,359			17,682
NON-INTEREST INCOME
Service charges on deposit accounts		2,838			2,869			8,090			8,857
Other service charges		85			92			259			270
Gain on sale of loans		708			921			2,341			2,236
Impairment losses on available for sale securities		-			(950	)		(250	)		(950	)
Gain on sale of investment securities		-			-			1,408			145
Investment products income		562			708			2,460			2,103
BOLI income		549			545			1,655			1,622
Derivative credit valuation adjustment		(309	)		(7,498	)		(12,324	)		(9,509	)
Other		1,337			961			3,025			2,941
Total non-interest income (loss)		5,770			(2,352	)		6,664			7,715
NON-INTEREST EXPENSE
Salaries and employee benefits		13,619			15,079			39,490			42,299
Occupancy expense		3,021			3,030			9,730			9,465
Equipment expense		1,899			1,663			5,484			5,149
Data processing expense		1,058			1,039			3,234			3,226
Amortization of intangible assets		922			922			2,764			2,764
Goodwill impairment		-			-			-			89,706
Insurance expense		1,479			2,105			4,753			5,632
Professional fees		879			461			2,859			1,504
Advertising expense		395			833			2,282			1,945
Problem loan expense		1,506			956			6,476			3,239
Real estate owned expense, net		448			93			1,078			403
Office supplies expense		315			377			984			1,163
Other		1,432			2,783			3,865			6,608
Total non-interest expense		26,973			29,341			82,999			173,103
INCOME (LOSS) BEFORE INCOME TAXES		2,657			(46,236	)		(65,976	)		(147,706	)
INCOME TAX (BENEFIT) EXPENSE		(23	)		28,757			10			9,219
NET INCOME (LOSS)		2,680			(74,993	)		(65,986	)		(156,925	)
Preferred stock dividends and discount accretion		-			274			-			274
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS	$	2,680		$	(75,267	)	$	(65,986	)	$	(157,199	)
Basic earnings (loss) per share	$	0.03		$	(3.14	)	$	(0.90	)	$	(6.66	)
Diluted earnings (loss) per share	$	0.03		$	(3.14	)	$	(0.90	)	$	(6.66	)
Weighted average shares – basic	84,429,644			23,960,691			73,643,303			23,587,981
Weighted average shares - diluted	84,538,449			23,960,691			73,643,303			23,587,981

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SUN BANCORP, INC. AND SUBSIDIARIES
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in thousands)
	2011			2011			2011			2010			2010
	Q3			Q2			Q1			Q4			Q3
Balance sheet at quarter end:
Cash and cash equivalents	$	134,209		$	192,645		$	266,504		$	187,226		$	205,265
Investment securities		557,380			478,814			470,546			493,493			479,055
Loans held-for-investment:
Commercial and industrial		1,899,231			1,905,628			1,862,903			2,103,492			2,235,715
Home equity		230,098			234,688			232,318			239,729			244,274
Second mortgage		45,030			47,920			50,388			53,912			58,305
Residential real estate		82,967			75,546			69,311			65,250			68,938
Other		49,077			52,825			55,402			58,963			58,930
Total gross loans held-for-investment		2,306,403			2,316,607			2,270,322			2,521,346			2,666,162
Allowance for loan losses		(55,227	)		(58,328	)		(58,498	)		(81,713	)		(74,579	)
Net loans held-for-investment		2,251,176			2,258,279			2,211,824			2,439,633			2,591,583
Loans held-for-sale		20,868			20,514			115,473			13,824			16,616
Goodwill		38,188			38,188			38,188			38,188			38,188
Intangible assets		7,868			8,789			9,710			10,631			11,552
Total assets		3,236,219			3,213,790			3,333,808			3,417,546			3,603,637
Total deposits		2,727,650			2,723,676			2,847,467			2,940,460			3,051,894
Securities sold under agreements to repurchase - customers		6,026			6,743			6,591			6,307			15,702
Advances from FHLBNY		3,054			3,372			3,687			3,999			4,308
Securities sold under agreements to repurchase - FHLBNY		15,000			15,000			15,000			15,000			15,000
Obligations under capital lease		7,930			7,991			8,051			8,111			8,169
Junior subordinated debentures		92,786			92,786			92,786			92,786			92,786
Total shareholders' equity		308,055			298,819			286,739			268,242			303,038
Quarterly average balance sheet:
Loans(1):
Commercial and industrial	$	1,901,394		$	1,936,621		$	2,072,519		$	2,184,212		$	2,292,274
Home equity		232,458			234,451			235,962			241,510			250,033
Second mortgage		47,844			50,257			53,402			57,310			60,729
Residential real estate		89,010			76,816			73,662			88,144			82,094
Other		49,361			52,831			55,847			57,522			59,998
Total gross loans		2,320,067			2,350,976			2,491,392			2,628,698			2,745,128
Securities and other interest-earning assets		616,679			643,808			639,092			658,013			518,262
Total interest-earning assets		2,936,746			2,994,784			3,130,484			3,286,711			3,263,390
Total assets		3,234,551			3,287,485			3,394,139			3,582,647			3,578,296
Non-interest-bearing demand deposits		528,505			491,235			481,605			509,093			505,036
Total deposits		2,716,542			2,774,767			2,904,448			3,032,594			3,043,268
Total interest-bearing liabilities		2,313,896			2,409,629			2,549,566			2,657,984			2,683,915
Total shareholders' equity		308,025			299,427			277,808			297,118			287,897
Capital and credit quality measures:
Total capital (to risk-weighted assets):
Sun Bancorp, Inc.		14.85	%		14.51	%		13.73	%		12.68	%		12.92	%
Sun National Bank		13.07	%		12.97	%		12.65	%		12.25	%		12.04	%
Tier 1 capital (to risk-weighted assets):
Sun Bancorp, Inc.		13.59	%		13.14	%		12.11	%		11.41	%		8.02	%
Sun National Bank		11.81	%		11.71	%		11.38	%		10.98	%		10.77	%
Leverage ratio:
Sun Bancorp, Inc.		11.08	%		10.47	%		9.62	%		8.93	%		6.67	%
Sun National Bank		9.64	%		9.35	%		9.05	%		8.57	%		8.91	%
Average equity to average assets		9.52	%		9.11	%		8.18	%		8.29	%		8.05	%
Allowance for loan losses to total gross loans held-for-investment		2.39	%		2.52	%		2.58	%		3.24	%		2.80	%
Non-performing assets to gross loans held-for-investment, loans held-for-sale and real estate owned		6.04	%		6.13	%		8.04	%		7.00	%		7.77	%
Allowance for loan losses to non-performing loans held-for-investment		42.23	%		45.25	%		50.41	%		47.02	%		36.46	%
Other data:
Net charge-offs		(5,809	)		(5,006	)		(83,498	)		(28,377	)		(41,602	)
Non-performing assets:
Non-accrual loans	$	107,665		$	113,806		$	113,959		$	159,426		$	192,769
Non-accrual loans held-for-sale		5,186			11,296			71,771			-			-
Troubled debt restructurings, non-accrual		22,353			15,090			831			11,796			-
Loans past due 90 days and accruing		744			-			1,263			2,554			11,802
Real estate owned, net		4,893			3,306			4,439			3,913			4,272
Total non-performing assets		140,841			143,498			192,263			177,689			208,843
Troubled debt restructuring, performing		-			-			20,276			20,341			20,396
(1) Average balances include non-accrual loans and loans held-for-sale

-9-

SUN BANCORP, INC. AND SUBSIDIARIES
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in thousands, except share and per share amounts)
	2011			2011			2011			2010			2010
	Q3			Q2			Q1			Q4			Q3
Profitability for the quarter:
Tax-equivalent interest income	$	31,802		$	32,673		$	32,458		$	35,736		$	36,971
Interest expense		5,329			5,813			6,923			8,081			8,686
Tax-equivalent net interest income		26,473			26,860			25,535			27,655			28,285
Tax-equivalent adjustment		292			368			409			382			399
Provision for loan losses		2,321			4,836			60,283			35,511			42,429
Non-interest income (loss) excluding net impairment losses on available for sale securities		5,770			4,993			(3,849	)		8,176			(1,402	)
Net impairment losses on available for sale securities		-			-			(250	)		(379	)		(950	)
Non-interest expense excluding amortization of intangible assets		26,051			27,323			26,861			27,028			28,419
Amortization of intangible assets		922			921			921			921			922
Income (loss) before income taxes		2,657			(1,595	)		(67,038	)		(28,390	)		(46,236	)
Income tax (benefit) expense		(23	)		4			29			103			28,757
Net income (loss)		2,680			(1,599	)		(67,067	)		(28,493	)		(74,993	)
Net income (loss) available to common shareholders	$	2,680		$	(1,599	)	$	(67,067	)	$	(28,219	)	$	(75,267	)
Financial ratios:
Return on average assets (1)		0.33	%		(0.19)	%		(7.90)	%		(3.18)	%		(8.38)	%
Return on average equity (1)		3.48	%		(2.14)	%		(96.57)	%		(38.36)	%		(104.19)	%
Return on average tangible equity (1),(2)		4.10	%		(2.54)	%		(116.91)	%		(46.01)	%		(126.27)	%
Net interest margin (1)		3.61	%		3.59	%		3.26	%		3.37	%		3.47	%
Efficiency ratio		84.42	%		89.71	%		132.13	%		79.69	%		114.91	%
Efficiency ratio, excluding non-operating income and non-operating expense		84.42	%		89.71	%		130.57	%		78.84	%		110.79	%
Per share data:
Income (loss) per common share:
Basic	$	0.03		$	(0.02	)	$	(1.25	)	$	(0.67	)	$	(3.14	)
Diluted	$	0.03		$	(0.02	)	$	(1.25	)	$	(0.67	)	$	(3.14	)
Book value	$	3.60		$	3.60		$	3.62		$	5.33		$	7.62
Tangible book value	$	3.06		$	3.03		$	3.02		$	4.36		$	5.86
Average basic shares	84,429,644			82,585,859			53,575,346			42,119,553			23,960,691
Average diluted shares	84,538,449			82,585,859			53,575,346			42,119,553			23,960,691
Operating non-interest income (loss):
Service charges on deposit accounts	$	2,838		$	2,702		$	2,550		$	2,715		$	2,869
Other service charges		85			88			86			94			92
Gain on sale of loans		708			708			925			1,324			921
Net gain (loss) on sale of available for sale securities		-			2,421			(1,013	)		4,606			-
Investment products income		562			1,010			888			728			708
BOLI income		549			560			546			452			545
Derivative credit valuation adjustment		(309	)		(3,624	)		(8,391	)		(2,705	)		(7,498	)
Other income		1,337			1,128			560			962			961
Total operating non-interest income (loss)		5,770			4,993			(3,849	)		8,176			(1,402	)
Non-operating loss(3):
Net impairment losses on available for sale securities recognized in earnings		-			-			(250	)		(379	)		(950	)
Total non-operating loss		-			-			(250	)		(379	)		(950	)
Total non-interest income (loss)	$	5,770		$	4,993		$	(4,099	)	$	7,797		$	(2,352	)
Operating non-interest expense:
Salaries and employee benefits	$	13,619		$	12,885		$	12,986		$	12,920		$	15,079
Occupancy expense		3,021			3,305			3,404			3,043			3,030
Equipment expense		1,899			1,903			1,682			1,634			1,663
Data processing expense		1,058			1,111			1,065			1,133			1,039
Amortization of intangible assets		922			921			921			921			922
Insurance expense		1,479			1,261			2,013			2,064			2,105
Professional fees		879			1,215			765			1,220			461
Advertising expense		395			1,322			565			390			833
Problem loan expense		1,506			1,863			3,107			1,923			956
Real estate owned expense (income), net		448			635			(5	)		398			93
Office supplies expense		315			324			345			338			377
Other expenses		1,432			1,499			934			1,965			2,783
Total non-interest expense		26,973			28,244			27,782			27,949			29,341
(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.

-10-

SUN BANCORP, INC. AND SUBSIDIARIES
AVERAGE BALANCE SHEETS (Unaudited)
(Dollars in thousands)
	For the Three Months Ended September 30,
	2011							2010
	Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Cost			Balance		Expense		Cost
Interest-earning assets:
Loans receivable (1),(2):
Commercial and industrial	$	1,901,394	$	23,028		4.84	%	$	2,292,274	$	26,620		4.65	%
Home equity		232,458		2,418		4.16			250,033		2,921		4.67
Second mortgage		47,844		698		5.84			60,729		932		6.14
Residential real estate		89,010		1,161		5.22			82,094		1,160		5.65
Other		49,361		844		6.84			59,998		1,031		6.87
Total loans receivable		2,320,067		28,149		4.85			2,745,128		32,664		4.76
Investment securities(3)		498,329		3,582		2.88			443,203		4,261		3.85
Interest-earning bank balances		118,350		71		0.24			75,059		46		0.25
Total interest-earning assets		2,936,746		31,802		4.33			3,263,390		36,971		4.53
Non-interest earning assets:
Cash and due from banks		72,744							51,660
Bank properties and equipment, net		55,461							52,962
Goodwill and intangible assets, net		46,511							50,324
Other assets		123,089							159,960
Total non-interest-earning assets		297,805							314,906
Total assets	$	3,234,551						$	3,578,296
Interest-bearing liabilities:
Interest-bearing deposit accounts:
Interest-bearing demand deposits	$	1,286,426	$	1,589		0.49	%	$	1,325,084	$	2,706		0.82	%
Savings deposits		270,196		321		0.48			293,744		550		0.75
Time deposits		631,415		2,388		1.51			919,404		4,004		1.74
Total interest-bearing deposit accounts		2,188,037		4,298		0.79			2,538,232		7,260		1.14
Short-term borrowings:
Federal funds purchased		-		-		-			6,288		5		0.32
Securities sold under agreements to repurchase - customers		6,952		1		0.06			19,003		9		0.19
Long-term borrowings:
FHLBNY advances (4)		18,162		223		4.91			19,412		222		4.57
Obligations under capital lease		7,959		132		6.63			8,194		136		6.64
Junior subordinated debentures		92,786		675		2.91			92,786		1,054		4.54
Total borrowings		125,859		1,031		3.28			145,683		1,426		3.92
Total interest-bearing liabilities		2,313,896		5,329		0.92			2,683,915		8,686		1.29
Non-interest bearing liabilities:
Non-interest-bearing demand deposits		528,505							505,036
Other liabilities		84,125							101,448
Total non-interest bearing liabilities		612,630							606,484
Total liabilities		2,926,526							3,290,399
Shareholders' equity		308,025							287,897
Total liabilities and shareholders' equity	$	3,234,551						$	3,578,296
Net interest income			$	26,473						$	28,285
Interest rate spread (5)						3.41	%						3.24	%
Net interest margin (6)						3.61	%						3.47	%
Ratio of average interest-earning assets to average interest-bearing liabilities						126.92	%						121.59	%
(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 September 30, 2011 and 2010 were $292,000 and $399,000, 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.

-11-

SUN BANCORP, INC. AND SUBSIDIARIES
AVERAGE BALANCE SHEETS (Unaudited)
(Dollars in thousands)
	For the Nine Months Ended September 30,
	2011							2010
	Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Cost			Balance		Expense		Cost
Interest-earning assets:
Loans receivable (1),(2):
Commercial and industrial	$	1,969,551	$	69,565		4.71	%	$	2,265,644	$	79,555		4.68	%
Home equity		234,278		7,426		4.23			254,999		8,969		4.69
Second mortgage		50,481		2,207		5.83			64,047		3,020		6.29
Residential real estate		79,885		3,209		5.36			76,650		3,236		5.63
Other		52,656		2,708		6.86			62,003		3,196		6.87
Total loans receivable		2,386,851		85,115		4.75			2,723,343		97,976		4.80
Investment securities (3)		490,397		11,565		3.14			439,147		13,629		4.14
Interest-earning bank balances		139,297		253		0.24			37,242		62		0.22
Total interest-earning assets		3,016,545		96,933		4.28			3,199,732		111,667		4.65
Non-interest earning assets:
Cash and due from banks		71,980							47,359
Bank properties and equipment, net		54,362							52,919
Goodwill and intangible assets, net		47,424							110,380
Other assets		114,496							152,088
Total non-interest-earning assets		288,262							362,746
Total assets	$	3,304,807						$	3,562,478
Interest-bearing liabilities:
Interest-bearing deposit accounts:
Interest-bearing demand deposits	$	1,333,259	$	5,589		0.56	%	$	1,287,747	$	8,112		0.84	%
Savings deposits		274,280		1,127		0.55			299,745		1,772		0.79
Time deposits		689,738		7,980		1.54			913,988		12,239		1.79
Total interest-bearing deposit accounts		2,297,277		14,696		0.85			2,501,480		22,123		1.18
Short-term borrowings:
Federal funds purchased		-		-		-			22,604		89		0.52
Securities sold under agreements to repurchase - customers		6,942		6		0.12			16,612		22		0.18
Long-term borrowings:
FHLBNY advances (4)		18,476		665		4.80			23,926		829		4.62
Obligations under capital lease		8,019		396		6.58			8,238		412		6.67
Junior subordinated debentures		92,786		2,302		3.31			92,786		3,085		4.43
Total borrowings		126,223		3,369		3.56			164,166		4,437		3.60
Total interest-bearing liabilities		2,423,500		18,065		0.99			2,665,646		26,560		1.33
Non-interest bearing liabilities:
Non-interest-bearing demand deposits		500,620							472,545
Other liabilities		85,489							88,996
Total non-interest bearing liabilities		586,109							561,541
Total liabilities		3,009,609							3,227,187
Shareholders' equity		295,198							335,291
Total liabilities and shareholders' equity	$	3,304,807						$	3,562,478
Net interest income			$	78,868						$	85,107
Interest rate spread (5)						3.29	%						3.32	%
Net interest margin (6)						3.49	%						3.55	%
Ratio of average interest-earning assets to average interest-bearing liabilities						124.47	%						120.04	%
(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 nine months ended September 30, 2011 and 2010 were $1.1 million and $1.4 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.

-12-

SUN BANCORP, INC. AND SUBSIDIARIES
AVERAGE BALANCE SHEETS (Unaudited)
(Dollars in thousands)
	For the Three Months Ended
	September 30, 2011							June 30, 2011
	Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Cost			Balance		Expense		Cost
Interest-earning assets:
Loans receivable (1),(2):
Commercial and industrial	$	1,901,394	$	23,028		4.84	%	$	1,936,621	$	23,385		4.83	%
Home equity		232,458		2,418		4.16			234,451		2,458		4.19
Second mortgage		47,844		698		5.84			50,257		734		5.84
Residential real estate		89,010		1,161		5.22			76,816		1,042		5.43
Other		49,361		844		6.84			52,831		919		6.96
Total loans receivable		2,320,067		28,149		4.85			2,350,976		28,538		4.86
Investment securities (3)		498,329		3,582		2.88			501,959		4,049		3.23
Interest-earning bank balances		118,350		71		0.24			141,849		86		0.24
Total interest-earning assets		2,936,746		31,802		4.33			2,994,784		32,673		4.36
Non-interest earning assets:
Cash and due from banks		72,744							75,200
Bank properties and equipment, net		55,461							54,065
Goodwill and intangible assets, net		46,511							47,431
Other assets		123,089							116,005
Total non-interest-earning assets		297,805							292,701
Total assets	$	3,234,551						$	3,287,485
Interest-bearing liabilities:
Interest-bearing deposit accounts:
Interest-bearing demand deposits	$	1,286,426	$	1,589		0.49	%	$	1,321,341	$	1,822		0.55	%
Savings deposits		270,196		321		0.48			275,315		379		0.55
Time deposits		631,415		2,388		1.51			686,876		2,607		1.52
Total interest-bearing deposit accounts		2,188,037		4,298		0.79			2,283,532		4,808		0.84
Short-term borrowings:
Securities sold under agreements to repurchase - customers		6,952		1		0.06			6,813		2		0.12
Long-term borrowings:
FHLBNY advances (4)		18,162		223		4.91			18,479		224		4.85
Obligations under capital lease		7,959		132		6.63			8,019		130		6.48
Junior subordinated debentures		92,786		675		2.91			92,786		649		2.80
Total borrowings		125,859		1,031		3.28			126,097		1,005		3.19
Total interest-bearing liabilities		2,313,896		5,329		0.92			2,409,629		5,813		0.96
Non-interest bearing liabilities:
Non-interest-bearing demand deposits		528,505							491,235
Other liabilities		84,125							87,194
Total non-interest bearing liabilities		612,630							578,429
Total liabilities		2,926,526							2,988,058
Shareholders' equity		308,025							299,427
Total liabilities and shareholders' equity	$	3,234,551						$	3,287,485
Net interest income			$	26,473						$	26,860
Interest rate spread (5)						3.41	%						3.40	%
Net interest margin (6)						3.61	%						3.59	%
Ratio of average interest-earning assets to average interest-bearing liabilities						126.92	%						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 September 30, 2011 and June 30, 2011 were $292,000 and $368,000, 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.

-13-