Sun Bancorp (SNBC) 8-K Sun Bancorp, Inc. Reports Third Quarter 2012 Results

News Release

For Immediate Release

Contact:  Thomas X. Geisel, President and Chief Executive Officer (856) 690-4329

Sun Bancorp, Inc. Reports Third Quarter 2012 Results

VINELAND, NJ – October 24, 2012 – Sun Bancorp, Inc. (NASDAQ: SNBC) reported today net income available to common shareholders of $1.2 million, or $0.01 per diluted share, for the quarter ended September 30, 2012, compared to net income available to common shareholders of $2.7 million, or $0.03 per diluted share, for the third quarter of 2011.

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

·   Provision expense totaled $1.9 million as compared to $510 thousand in the second quarter of 2012. The allowance for loan losses equaled $49.0 million at quarter end, a decrease of $2.4 million from June 30, 2012, and an increase of $7.3 million from December 31, 2011. The allowance for loan losses equaled 2.12% of gross loans held for investment and 40.6% of non-performing loans as compared to 2.29% and 49.4% and 1.82% and 38.7%, respectively, at June 30, 2012 and December 31, 2011.

·   Commercial loan production remained strong at $113 million during the third quarter versus $65 million in the linked quarter as the Company continues to originate strong credits for the portfolio.

·   The net interest margin equaled 3.41% versus 3.53% in the linked quarter. The current quarter margin was negatively impacted by $507 thousand of interest reversals as well as a decline in commercial loan yields. The interest reversals were due primarily to approximately $24 million in loan balances for two relationships which were moved to non-accrual status.  Although these two relationships were current at September 30, 2012 and are well secured, the Company elected to designate these loans as non-accrual because certain agreed upon financial metrics were not met. Excluding these two credits, the Company continued to experience reductions in the portfolio resulting from its ongoing efforts to manage the workout portfolio.

·   Non-interest income increased $2.1 million to $9.6 million as compared to the linked quarter primarily due to an increase of $2.3 million in gains on the sale of mortgage loans. The Company’s residential mortgage platform has continued its strong growth as $240 million in residential mortgage loans were recorded and $120 million sold during the third quarter as compared to $139 million and $86 million, respectively, in the linked quarter.

·   Total risk-based capital was 14.30% at September 30, 2012, well above the regulatory required level.

“Our parallel efforts to strengthen and grow the Company continued through the third quarter of this year,” said Thomas X. Geisel, Sun’s President and Chief Executive Officer.  “We are encouraged by the growth of our residential mortgage platform, and have demonstrated our competitive advantage with strong commercial loan production and a robust pipeline despite the difficult economic environment.  We will continue to focus our efforts on asset resolution, business growth and loan origination as we advance our corporate strategy for the balance of 2012.”

Discussion of Results:

Balance Sheet

● Total assets were $3.18 billion at September 30, 2012 and December 31, 2011 and $3.24 billion at September 30, 2011.

● Gross loans held-for-investment were $2.31 billion at September 30, 2012, as compared to $2.29 billion at December 31, 2011 and $2.30 billion at September 30, 2011. This increase is the result of growth in the residential mortgage portfolio.

● Deposits increased by $38.8 million from the linked quarter to $2.65 billion at September 30, 2012.  The increase was due to seasonal public funds activity.

● Borrowings increased by $27.7 million from the linked quarter in order to fund the residential loan growth during the period.

Net Interest Income and Margin

● On a tax equivalent basis, net interest income decreased $552 thousand over the linked quarter to $24.5 million. The net interest margin decreased 12 basis points to 3.41% from 3.53% for the linked quarter, and 20 basis points as compared to the same prior year quarter. The average yield on interest-earning assets decreased 17 basis points over the linked quarter from 4.16% to 3.99%. This decrease is due to $547 thousand of interest reversals, primarily related to two credits, recorded during the quarter as well as declining commercial loan yields resulting from legacy loans maturing and/or re-setting at lower rates. The average cost of interest-bearing liabilities decreased seven basis points to 0.73% as interest-bearing deposit costs declined by four basis points and trust preferred debt rates re-set at lower levels.  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 $9.6 million for the quarter ended September 30, 2012, an increase of $2.1 million from the linked quarter of $7.5 million and $3.8 million above the comparable prior year quarter of $5.8 million. The increase from the linked quarter was primarily attributable to an increase of $2.3 million in gains on the sale of mortgage loans. Included in this increase is a $1.5 million positive mark-to-market adjustment as the Company elected the fair value option on its loans held-for-sale, effective July 1, 2012. The Company also recognized $630 thousand of net gains on forward commitments and interest rate lock commitments within its residential mortgage portfolio.  These increases were partially offset by a decrease of $430 thousand in gains on the sale of investment securities from the prior quarter.  In addition, there was a decrease of $238 thousand from the linked quarter in income from investment services.  The increase from the prior year period is due to an increase of $3.5 million in mortgage gains and a prior year derivative credit valuation loss of $309 thousand.

Non-Interest Expense

● The Company incurred $30.9 million of non-interest expense in the third quarter of 2012, an increase of $273 thousand over the linked quarter and an increase of $3.9 million from the comparable prior year quarter. Problem loan costs increased by $880 thousand due to $1.3 million in real estate tax expenses recognized on one non-performing relationship. Excluding this item, the normalized run rate for problem loan costs continues to decline. Salaries and benefits increased $372 thousand due to increased mortgage production. These items were mostly offset by a $544 thousand decline in advertising expense due to prior period Boomerang campaign expenses as well as a $455 thousand decrease in mortgage recourse expense. 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 third quarter was $1.9 million, as compared to $510 thousand in the linked quarter and $2.3 million in the comparable prior year quarter. The allowance for loan losses was $49.0 million at September 30, 2012, or 2.12% 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 2.39% at September 30, 2011.  Net charge-offs recorded in the current quarter were $4.2 million, or 0.18% of average loans, as compared to $1.2 million, or 0.06% of average loans for the linked quarter and $5.8 million, or 0.25% of average loans outstanding for the comparable prior year quarter.

● Total non-performing assets were $126.4 million, or 5.32% of total gross loans held-for-investment, loans held-for-sale and real estate owned at September 30, 2012, as compared to $110.1 million, or 4.84% and $140.8 million, or 6.04%, respectively, at June 30, 2012 and September 30, 2011. Non-performing loans increased to $120.8 million at September 30, 2012 as compared to $104.0 million at June 30, 2012. This increase is due primarily to the aforementioned transfer of two credit relationships in the aggregate amount of $24 million into non-performing status at September 30, 2012; partially offset by $6.9 million in net paydowns out of the category.

Capital

● Stockholders’ equity totaled $287.5 million at September 30, 2012 compared to $309.1 million at December 31, 2011. The Company’s tangible equity to tangible assets ratio was 7.81% at September 30, 2012, as compared to 8.41% at December 31, 2011.  At September 30, 2012, the Company’s total risk-based capital ratio, Tier 1 capital ratio and leverage capital ratio were approximately 14.30%, 12.73%, and 10.43%, respectively.  At September 30, 2012, Sun National Bank’s total risk-based capital ratio, Tier 1 capital ratio and leverage capital ratio were approximately 13.63%, 12.37%, and 10.12%, respectively. 

The Company will hold its regularly scheduled conference call on Thursday, October 25, 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 $3.18 billion asset bank holding company headquartered in Vineland, New Jersey, with its executive offices located in Mt. Laurel, New Jersey. Its primary subsidiary is Sun National Bank, a full service commercial bank serving customers through 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 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, 2012 and 2011 were $212 thousand and $292 thousand, respectively. The fully taxable equivalent adjustments for the nine months ended September 30, 2012 and 2011 were $661 thousand and $1.1 million, respectively. The fully taxable equivalent adjustment for the three months ended June 30, 2012 was $217 thousand. Non-operating income (loss) is also a non-GAAP financial measure. Non-operating income (loss) includes impairment losses recognized on available for sale securities included in earnings. There were no non-operating income (loss) items for the three months ended September 30, 2012, June 30, 2012, March 31, 2012, December 31, 2011, and September 30, 2011. Non-operating loss during the nine months ended September 30, 2011 was $250 thousand.

3

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,
		2012					2011						2012					2011
Profitability for the period:
Net interest income		$		24,334			$			26,181			$		73,867			$	77,799
Provision for loan losses				1,868						2,321					33,061				67,440
Non-interest income				9,588						5,770					22.635				6,664
Non-interest expense				30,860						26,973					89,010				82,999
Income (loss) before income taxes				1,194						2,657					(25,569		)		(65,976		)
Net income (loss)				1,228						2,680					(25,535		)		(65,986		)
Net income (loss) available to common shareholders		$		1,228			$			2,680			$		(25,535		)	$	(65,986		)
Financial ratios:
Return on average assets(1)				0.16	%					0.33	%				(1.08)		%		(2.66)		%
Return on average equity(1)				1.70	%					3.48	%				(11,52)		%		(29.80)		%
Return on average tangible equity(1),(2)				1.99	%					4.10	%				(13.51)		%		(35.51)		%
Net interest margin(1)				3.41	%					3.61	%				3.47		%		3.49		%
Efficiency ratio				90.97	%					84.42	%				92.24		%		98.27		%
Efficiency ratio, excluding non-operating income and non-operating expense(3)				90.97	%					84.42	%				92.24		%		97.98		%
Earnings (loss) per common share:
Basic		$		0.01			$			0.03			$		(0.30		)	$	(0.90		)
Diluted		$		0.01			$			0.03			$		(0.30		)	$	(0.90		)
Average equity to average assets				9.17	%					9.52	%				9.41		%		8.93		%
			September 30,										December 31,
			2012			2011							2011
At period-end:
Total assets			$	3,180,535				$	3,236,219				$			3,183,916
Total deposits				2,646,807					2,727,650							2,667,977
Loans receivable, net of allowance for loan losses				2,261,980					2,251,176							2,249,455
Loans held-for-sale(4)				60,676					20,868							23,192
Investments				527,034					557,380							532,715
Borrowings				78,011					32,010							31,269
Junior subordinated debentures				92,786					92,786							92,786
Shareholders’ equity				287,480					308,055							309,083
Credit quality and capital ratios:
Allowance for loan losses to gross loans     held-for-investment				2.12		%			2.39			%				1.82				%
Non-performing assets to gross loans held-for-investment, loans held-for-sale and real estate owned				5.32		%			6.04			%				4.86				%
Allowance for loan losses to non-performing loans held-for-investment				40.56		%			42.23			%				38.69				%
Total capital (to risk-weighted assets):
Sun Bancorp, Inc.				14.30		%			14.85			%				15.22				%
Sun National Bank				13.63		%			13.07			%				13.39				%
Tier 1 capital (to risk-weighted assets):
Sun Bancorp, Inc.				12.73		%			13.59			%				13.96				%
Sun National Bank				12.37		%			11.81			%				12.13				%
Leverage ratio:
Sun Bancorp, Inc.				10.43		%			11.08			%				11.09				%
Sun National Bank				10.12		%			9.64			%				9.64				%
Book value per common share			$	3.34				$	3.60					$		3.61
Tangible book value per common share			$	2.85				$	3.06					$		3.08
(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 thousand.
(4) Amount at September 30, 2011 includes $5.2 million of commercial real estate loans marked at fair value.

4

SUN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
(Dollars in thousands, except par value amounts)
	September 30, 2012			December 31, 2011
ASSETS
Cash and due from banks	$	75,555		$	68,773
Interest-earning bank balances		8,299			51,049
Cash and cash equivalents		83,854			119,822
Investment securities available for sale (amortized cost of $503,432 and $514,488 at September 30, 2012 and December 31, 2011, respectively)		508,173			515,545
Investment securities held to maturity (estimated fair value of $884 and $1,413 at September 30, 2012 and December 31, 2011, respectively)		821			1,344
Loans receivable (net of allowance for loan losses of $49,016 and $41,667 at September 30, 2012 and December 31, 2011, respectively)		2,261,980			2,249,455
Loans held-for-sale, at cost		-			23,192
Loans held-for-sale, at fair value		60,676			-
Restricted equity investments		18,040			15,826
Bank properties and equipment, net		51,630			54,756
Real estate owned		5,513			5,020
Accrued interest receivable		8,183			8,912
Goodwill		38,188			38,188
Intangible assets		4,183			6,947
Bank owned life insurance (BOLI)		76,369			74,871
Other assets		62,925			70,038
Total assets	$	3,180,535		$	3,183,916
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits	$	2,646,807		$	2,667,977
Federal funds purchased		30,000			-
Securities sold under agreements to repurchase – customers		3,587			5,668
Advances from the Federal Home Loan Bank of New York (FHLBNY)		16,749			2,733
Securities sold under agreements to repurchase – FHLBNY		20,000			15,000
Obligations under capital lease		7,675			7,868
Junior subordinated debentures		92,786			92,786
Deferred taxes, net		1,937			432
Other liabilities		73,514			82,369
Total liabilities		2,893,055			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; 88,143,024 shares issued and 86,036,301 shares outstanding at September 30, 2012; 87,825,038 shares issued and 85,718,315 shares outstanding at December 31, 2011		88,171			87,825
Additional paid-in capital		505,954			504,508
Retained deficit		(283,055	)		(257,520	)
Accumulated other comprehensive income		2,804			625
Deferred compensation plan trust		(232	)		(193	)
Treasury stock at cost, 2,106,723 shares at  September 30, 2012 and December 31, 2011		(26,162	)		(26,162	)
Total shareholders’ equity		287,480			309,083
Total liabilities and shareholders’ equity	$	3,180,535		$	3,183,916

5

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,
		2012			2011			2012			2011
INTEREST INCOME
Interest and fees on loans	$	25,631		$	28,149		$	78,037		$	85,115
Interest on taxable investment securities		2,221			2,603			7,278			8,086
Interest on non-taxable investment securities		393			542			1,228			1,984
Dividends on restricted equity investments		224			216			735			679
Total interest income		28,469			31,510			87,278			95,864
INTEREST EXPENSE
Interest on deposits		3,279			4,298			10,410			14,696
Interest on funds borrowed		259			356			978			1,067
Interest on junior subordinated debentures		597			675			2,023			2,302
Total interest expense		4,135			5,329			13,411			18,065
Net interest income		24,334			26,181			73,867			77,799
PROVISION FOR LOAN LOSSES		1,868			2,321			33,061			67,440
Net Interest income after provision for loan losses		22,466			23,860			40,806			10,359
NON-INTEREST INCOME
Service charges on deposit accounts		2,848			2,838			8,246			8,090
Other service charges		69			85			222			259
Gain on sale of loans		4,204			708			6,785			2,341
Impairment losses on available for sale securities		-			-			-			(250)
Gain on sale of investment securities		-			-			430			1,408
Investment products income		510			562			1,690			2,460
BOLI income		489			549			1,498			1,655
Derivative credit valuation adjustment		(198	)		(309	)		(525	)		(12,324)
Other		1,666			1,337			4,289			3,025
Total non-interest income		9,588			5,770			22,635			6,664
NON-INTEREST EXPENSE
Salaries and employee benefits		16,128			13,619			46,655			39,490
Occupancy expense		3,275			3,021			9,595			9,730
Equipment expense		1,866			1,899			5,394			5,484
Amortization of intangible assets		922			922			2,764			2,764
Data processing expense		1,084			1,058			3,246			3,234
Professional fees		578			879			1,814			2,859
Insurance expenses		1,375			1,479			4,318			4,753
Advertising expense		464			395			1,769			2,282
Problem loan expense		2,154			1,506			4,905			6,476
Real estate owned expense, net		779			448			1,350			1,078
Office supplies expense		302			315			949			984
Other		1,933			1,432			6,251			3,865
Total non-interest expense		30,860			26,973			89,010			82,999
INCOME (LOSS) BEFORE INCOME TAXES		1,194			2,657			(25,569	)		(65,976	)
INCOME TAX (BENEFIT) EXPENSE		(34	)		(23	)		(34	)		10
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS	$	1,228		$	2,680		$	(25,535	)	$	(65,986	)
Basic earnings (loss) per share	$	0.01		$	0.03		$	(0.30	)	$	(0.90	)
Diluted earnings (loss) per share	$	0.01		$	0.03		$	(0.30	)	$	(0.90	)
Weighted average shares – basic	86,001,929			84,429,644			85,888,236			73,643,303
Weighted average shares - diluted	86,047,655			84,538,449			85,888,236			73,643,303

6

SUN BANCORP, INC. AND SUBSIDIARIES
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in thousands)
	2012		2012		2012		2011		2011
	Q3		Q2		Q1		Q4		Q3
Balance sheet at quarter end:
Cash and cash equivalents	$	83,854	$	115,891	$	87,553	$	119,822	$	134,209
Investment securities		527,034		549,849		576,457		532,715		557,380
Loans held-for-investment:
Commercial and industrial		1,802,060		1,794,830		1,820,054		1,878,026		1,899,231
Home equity		212,911		217,768		219,926		224,517		230,098
Second mortgage		32,610		36,429		38,815		41,470		45,030
Residential real estate		224,346		153,373		109,807		100,438		82,967
Other		39,069		42,486		36,952		46,671		49,077
Total gross loans held-for-investment		2,310,996		2,244,886		2,225,554		2,291,122		2,306,403
Allowance for loan losses		(49,016)		(51,394)		(52,127)		(41,667)		(55,227)
Net loans held-for-investment		2,261,980		2,193,492		2,173,427		2,249,455		2,251,176
Loans held-for-sale		60,676		24,672		25,034		23,192		20,868
Goodwill		38,188		38,188		38,188		38,188		38,188
Intangible assets		4,183		5,104		6,025		6,947		7,868
Total assets		3,180,535		3,133,487		3,113,269		3,183,916		3,236,219
Total deposits		2,646,807		2,608,034		2,631,652		2,667,977		2,727,650
Federal funds purchased		30,000		-		-		-		-
Securities sold under agreements to repurchase – customers		3,587		5,454		5,870		5,668		6,026
Advances from FHLBNY		16,749		22,080		2,408		2,733		3,054
Securities sold under agreements to repurchase – FHLBNY		20,000		15,000		15,000		15,000		15,000
Obligations under capital lease		7,675		7,740		7,805		7,868		7,930
Junior subordinated debentures		92,786		92,786		92,786		92,786		92,786
Total shareholders’ equity		287,480		284,768		283,163		309,083		308,055
Quarterly average balance sheet:
Loans(1):
Commercial and industrial	$	1,805,623	$	1,815,704	$	1,849,216	$	1,910,635	$	1,901,394
Home equity		215,542		218,910		220,411		226,345		232,458
Second mortgage		35,816		38,545		41,346		44,600		47,844
Residential real estate		230,259		155,479		123,567		111,514		89,010
Other		33,658		34,765		41,733		46,248		49,361
Total gross loans		2,320,898		2,263,403		2,276,273		2,339,342		2,320,067
Securities and other interest-earning assets		555,846		583,788		580,349		602,485		616,679
Total interest-earning assets		2,876,744		2,847,191		2,856,622		2,941,827		2,936,746
Total assets		3,153,668		3,116,627		3,154,984		3,229,699		3,234,551
Non-interest-bearing demand deposits		504,936		493,707		487,088		536,558		528,505
Total deposits		2,642,048		2,604,083		2,621,736		2,706,772		2,716,542
Total interest-bearing liabilities		2,279,177		2,259,370		2,265,830		2,294,786		2,313,896
Total shareholders’ equity		289,129		285,667		312,281		310,786		308,025
Capital and credit quality measures:
Total capital (to risk-weighted assets) (2):
Sun Bancorp, Inc.		14.30%		14.61%		14.49%		15.22%		14.85%
Sun National Bank		13.63%		13.90%		13.77%		13.39%		13.07%
Tier 1 capital (to risk-weighted assets) (2):
Sun Bancorp, Inc.		12.73%		13.00%		12.86%		13.96%		13.59%
Sun National Bank		12.37%		12.64%		12.51%		12.13%		11.81%
Leverage ratio:
Sun Bancorp, Inc.		10.43%		10.45%		10.21%		11.09%		11.08%
Sun National Bank		10.12%		10.15%		9.93%		9.64%		9.64%
Average equity to average assets		9.17%		9.17%		9.91%		9.62%		9.52%
Allowance for loan losses to total gross loans held-for-investment		2.12%		2.29%		2.34%		1.82%		2.39%
Non-performing assets to gross loans held-for-investment, loans held-for-sale and real estate owned		5.32%		4.84%		5.27%		4.86%		6.04%
Allowance for loan losses to non-performing loans held-for-investment		40.56%		49.44%		45.52%		38.69%		42.23%
Other data:
Net charge-offs		(4,246)		(1,243)		(20,223)		(20,386)		(5,809)
Non-performing assets:
Non-accrual loans	$	95,383	$	79,696	$	87,847	$	89,656	$	107,665
Non-accrual loans held-for-sale		-		-		-		-		5,186
Troubled debt restructurings, non-accrual		25,454		24,256		26,674		17,875		22,353
Loans past due 90 days and accruing		-		-		74		154		744
Real estate owned, net		5,513		6,116		4,165		5,020		4,893
Total non-performing assets		126,350		110,068		118,760		112,705		140,841
(1)Average balances include non-accrual loans and loans held-for-sale (2)September 30, 2012 capital ratios are estimated, subject to regulatory filings.

7

SUN BANCORP, INC. AND SUBSIDIARIES
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in thousands, except share and per share amounts)
	2012			2012		2012			2011			2011
	Q3			Q2		Q1			Q4			Q3
Profitability for the quarter:
Tax-equivalent interest income	$	28,681		$	29,619	$	29,641		$	31,087		$	31,802
Interest expense		4,135			4,519		4,758			5,087			5,329
Tax-equivalent net interest income		24,546			25,098		24,883			26,000			26,473
Tax-equivalent adjustment		212			217		233			271			292
Provision for loan losses		1,868			510		30,683			6,826			2,321
Non-interest income excluding net impairment losses on available for sale securities		9,588			7,527		5,519			6,804			5,770
Non-interest expense excluding amortization of intangible assets		29,938			29,666		26,643			26,305			26,051
Amortization of intangible assets		922			921		921			921			922
Income (loss) before income taxes		1,194			1,313		(28,078	)		(1,519	)		2,657	)
Income tax benefit		(34	)		-		-			-			(23	)
Net income (loss)		1,228			1,313		(28,078	)		(1,519	)		2,680
Net income (loss) available to common shareholders	$	1,228		$	1,313	$	(28,078)		$	(1,519)		$	2,680
Financial ratios:
Return on average assets (1)		0.16%			0.17%		(3.56)%			(0.19)%			0.33	%
Return on average equity (1)		1.70%			1.84%		(35.97)%			(1.96)%			3.48	%
Return on average tangible equity (1),(2)		1.99%			2.17%		(41.97)%			(2.29)%			4.10	%
Net interest margin (1)		3.41%			3.53%		3.48%			3.54%			3.61	%
Efficiency ratio		90.97%			94.38%		91.37%			83.69%			84.42	%
Per share data:
Income (loss) per common share:
Basic	$	0.01		$	0.02	$	(0.34	)	$	(0.02	)	$	0.03
Diluted	$	0.01		$	0.02	$	(0.34	)	$	(0.02	)	$	0.03
Book value	$	3.34		$	3.31	$	3.30		$	3.61		$	3.60
Tangible book value	$	2.85		$	2.81	$	2.78		$	3.08		$	3.06
Average basic shares	86,001,929			85,884,671		85,776,858			85,587,878			84,429,644
Average diluted shares	86,047,655			85,916,421		85,776,858			85,587,878			84,538,449
Operating non-interest income:
Service charges on deposit accounts	$	2,848		$	2,730	$	2,668		$	2,799		$	2,838
Other service charges		69			80		73			71			85
Gain on sale of loans		4,204			1,865		716			906			708
Net gain on sale of available for sale securities		-			430		-			280			-
Investment products income		510			748		432			453			562
BOLI income		489			492		516			1,309			549
Derivative credit valuation adjustment		(198	)		(13)		(314	)		(214	)		(309	)
Other income		1,666			1,195		1,428			1,200			1,337
Total non-interest income	$	9,588		$	7,527	$	5,519		$	6,804			5,770
Operating non-interest expense:
Salaries and employee benefits	$	16,128		$	15,756	$	14,771		$	13,011		$	13,619
Occupancy expense		3,275			3,271		3,049			3,643			3,021
Equipment expense		1,866			1,763		1,765			1,858			1,899
Data processing expense		1,084			1,106		1,056			1,118			1,058
Amortization of intangible assets		922			921		921			921			922
Insurance expense		1,375			1,464		1,479			1,433			1,479
Professional fees		578			757		479			412			879
Advertising expense		464			1,008		297			664			395
Problem loan costs		2,154			1,274		1,477			1,866			1,506
Real estate owned expense,net		779			490		81			108			448
Office supplies expense		302			328		319			323			315
Other expense		1,933			2,449		1,870			1,869			1,432
Total non-interest expense	$	30,860		$	30,587	$	27,564		$	27,226		$	26,973
(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.

8

SUN BANCORP, INC. AND SUBSIDIARIES
AVERAGE BALANCE SHEETS (Unaudited)
(Dollars in thousands)
	For the Three Months Ended September 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	$	1,805,623	$	20,139		4.46	%	$	1,901,394	$	23,028		4.84	%
Home equity		215,542		2,141		3.97			232,458		2,418		4.16
Second mortgage		35,816		518		5.79			47,844		698		5.84
Residential real estate		230,259		2,257		3.92			89,010		1,161		5.22
Other		33,658		576		6.85			49,361		844		6.84
Total loans receivable		2,320,898		25,631		4.42			2,320,067		28,149		4.85
Investment securities(3)		534,842		3,038		2.27			498,329		3,582		2.88
Interest-earning bank balances		21,004		12		0.23			118,350		71		0.24
Total interest-earning assets		2,876,744		28,681		3.99			2,936,746		31,802		4.33
Non-interest earning assets:
Cash and due from banks		75,627							72,744
Bank properties and equipment, net		52,127							55,461
Goodwill and intangible assets, net		42,826							46,511
Other assets		106,344							123,089
Total non-interest-earning assets		276,924							297,805
Total assets	$	3,153,668						$	3,234,551
Interest-bearing liabilities:
Interest-bearing deposit accounts:
Interest-bearing demand deposits	$	1,218,338	$	1,195		0.39	%	$	1,286,426	$	1,589		0.49	%
Savings deposits		264,112		225		0.34			270,196		321		0.48
Time deposits		654,662		1,859		1.14			631,415		2,388		1.51
Total interest-bearing deposit accounts		2,137,112		3,279		0.61			2,188,037		4,298		0.79
Short-term borrowings:
Federal funds purchased		6,467		4		0.25			-		-		-
FHLBNY advances		20,000		22		0.44			-		-		-
Securities sold under agreements to repurchase - customers		4,925		2		0.16			6,952		1		0.06
Long-term borrowings:
FHLBNY advances (4)		10,181		103		4.71			18,162		223		4.91
Obligations under capital lease		7,706		128		6.64			8,019		132		6.63
Junior subordinated debentures		92,786		597		2.57			92,786		675		2.91
Total borrowings		142,065		856		2.46			125,859		1,031		3.28
Total interest-bearing liabilities		2,279,177		4,135		0.73			2,313,896		5,329		0.92
Non-interest bearing liabilities:
Non-interest-bearing demand deposits		504,936							528,505
Other liabilities		80,426							84,125
Total non-interest bearing liabilities		585,362							612,630
Total liabilities		2,864,539							2.926,526
Shareholders' equity		289,129							308,025
Total liabilities and shareholders' equity	$	3,153,668						$	3,234,551
Net interest income			$	24,546						$	26,473
Interest rate spread (5)						3.26	%						3.41	%
Net interest margin (6)						3.41	%						3.61	%
Ratio of average interest-earning assets to average interest-bearing liabilities						126.22	%						126.92	%
(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, 2012 and 2011 were $212 thousand and $292 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.

9

SUN BANCORP, INC. AND SUBSIDIARIES
AVERAGE BALANCE SHEETS (Unaudited)
(Dollars in thousands)
	For the Nine Months Ended September 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	$	1,823,449	$	62,537		4.57	%	$	1,969,551	$	69,565			4.71	%
Home equity		218,278		6,683		4.08			234,278		7,426			4.23
Second mortgage		38,559		1,658		5.73			50,481		2,207			5.83
Residential real estate		169,989		5,241		4.11			79,885		3,209			5.36
Other		36,707		1,918		6.97			52,656		2,708			6.86
Total loans receivable		2,286,982		78,037		4.55			2,386,851		85,115			4.75
Investment securities (3)		547,968		9,858		2.40			490,397		11,565			3.14
Interest-earning bank balances		25,296		44		0.23			139,297		253			0.24
Total interest-earning assets		2,860,246		87,939		4.10			3,016,545		96,933			4.28
Non-interest earning assets:
Cash and due from banks		73,292							71,980
Bank properties and equipment, net		53,206							54,362
Goodwill and intangible assets, net		43,743							47,424
Other assets		111,242							114,496
Total non-interest-earning assets		281,483							288,262
Total assets	$	3,141,729						$	3,304,807
Interest-bearing liabilities:
Interest-bearing deposit accounts:
Interest-bearing demand deposits	$	1,226,064	$	3,600		0.39	%	$	1,333,259	$	5,589			0.56	%
Savings deposits		263,091		671		0.34			274,280		1,127			0.55
Time deposits		638,259		6,139		1.28			689,738		7,980			1.54
Total interest-bearing deposit accounts		2,127,414		10,410		0.65			2,297,277		14,696			0.85
Short-term borrowings:
Federal funds purchased		7,263		19		0.35			-		-			-
FHLBNY advances		6,715		41		0.81
Securities sold under agreements to repurchase - customers		5,797		6		0.14			6,942		6			0.12
Long-term borrowings:
FHLBNY advances (4)		20,421		526		3.43			18,476		665			4.80
Obligations under capital lease		7,770		386		6.62			8,019		396			6.58
Junior subordinated debentures		92,786		2,023		2.91			92,786		2,302			3.31
Total borrowings		140,752		3,001		2.84			126,223		3,369			3.56
Total interest-bearing liabilities		2,268,166		13,411		0.79			2,423,500		18,065			0.99
Non-interest bearing liabilities:												��
Non-interest-bearing demand deposits		495,279							500,620
Other liabilities		82,615							85,489
Total non-interest bearing liabilities		577,894							586,109
Total liabilities		2,846,060							3,009,609
Shareholders' equity		295,669							295,198
Total liabilities and shareholders' equity	$	3,141,729						$	3,304,807
Net interest income			$	74,528						$	78,868
Interest rate spread (5)						3.31	%							3.29	%
Net interest margin (6)						3.47	%							3.49	%
Ratio of average interest-earning assets to average interest-bearing liabilities						126.10	%							124.47	%
(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, 2012 and 2011 were $661 thousand and $1.1 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.

10

SUN BANCORP, INC. AND SUBSIDIARIES
AVERAGE BALANCE SHEETS (Unaudited)
(Dollars in thousands)
	For the Three Months Ended
	September 30, 2012							June 30, 2012
	Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Cost			Balance		Expense		Cost
Interest-earning assets:
Loans receivable (1),(2):
Commercial and industrial	$	1,805,623	$	20,139		4.46	%	$	1,815,704	$	21,123		4.65	%
Home equity		215,542		2,141		3.97			218,910		2,297		4.20
Second mortgage		35,816		518		5.79			38,545		550		5.71
Residential real estate		230,259		2,257		3.92			155,479		1,608		4.14
Other		33,658		576		6.85			34,765		624		7.18
Total loans receivable		2,320,898		25,631		4.42			2,263,403		26,202		4.63
Investment securities (3)		534,842		3,038		2.27			558,708		3,402		2.44
Interest-earning bank balances		21,004		12		0.23			25,080		15		0.24
Total interest-earning assets		2,876,744		28,681		3.99			2,847,191		29,619		4.16
Non-interest earning assets:
Cash and due from banks		75,627							72,472
Bank properties and equipment, net		52,127							53,164
Goodwill and intangible assets, net		42,826							43,745
Other assets		106,344							100,055
Total non-interest-earning assets		276,924							269,436
Total assets	$	3,153,668						$	3,116,627
Interest-bearing liabilities:
Interest-bearing deposit accounts:
Interest-bearing demand deposits	$	1,218,338	$	1,195		0.39	%	$	1,208,250		1,146		0.38	%
Savings deposits		264,112		225		0.34			262,947		217		0.33
Time deposits		654,662		1,859		1.14			639,179		2,084		1.30
Total interest-bearing deposit accounts		2,137,112		3,279		0.61			2,110,376		3,447		0.65
Short-term borrowings:
Federal funds purchased		6,467		4		0.25			8,956		9		0.40
FHLBNY advances		20,000		22		0.44			-		-		-
Securities sold under agreements to repurchase - customers		4,925		2		0.16			5,807		2		0.14
Long-term borrowings:
FHLBNY advances (4)		10,181		103		4.71			33,675		229		2.72
Obligations under capital lease		7,706		128		6.64			7,770		129		6.64
Junior subordinated debentures		92,786		599		2.57			92,786		703		3.04
Total borrowings		142,065		856		2.46			148,994		1,072		2.88
Total interest-bearing liabilities		2,279,177		4,135		0.73			2,259,370		4,521		.80
Non-interest bearing liabilities:
Non-interest-bearing demand deposits		504,936							493,707
Other liabilities		80,426							77,883
Total non-interest bearing liabilities		585,362							571,590
Total liabilities		2,864,539							2,830,960
Shareholders' equity		289,129							285,667
Total liabilities and shareholders' equity	$	3,153,668						$	3,116,627
Net interest income			$	24,546						$	25,098
Interest rate spread (5)						3.26	%						3.36	%
Net interest margin (6)						3.41	%						3.53	%
Ratio of average interest-earning assets to average interest-bearing liabilities						126.22	%						126.02	%
(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, 2012 and June 30, 2012 were $212 thousand and $217 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.

11