Sun Bancorp (SNBC) 8-K Sun Bancorp, Inc. Reports Second Quarter 2013 Results

News Release

For Immediate Release

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

Sun Bancorp, Inc. Reports Second Quarter 2013 Results

Second Quarter Highlights

·   Profitable second quarter with net income of $678 thousand and $3.1 million year-to-date

·   Continued progress in methodical reductions in problem loans with 41% reduction in non-performing loans in the past three quarters

·   Continued workout success resulted in $2.8 million of net recoveries for the second quarter and $3.8 million year-to-date

·   Net mortgage banking revenue totaled $5.6 million in the second quarter compared to $3.4 million in the linked quarter and $1.3 million in the comparable prior year quarter

·   Well positioned for rising rates with an asset sensitive balance sheet and over 10% of assets in cash

VINELAND, NJ – July 24, 2013 – Sun Bancorp, Inc. (NASDAQ: SNBC) reported today net income available to common shareholders of $678 thousand, or $0.01 per diluted share, for the quarter ended June 30, 2013, compared to net income available to common shareholders of $1.3 million, or $0.02 per diluted share, for the second quarter of 2012.

The following are key items and events that occurred during the second quarter of 2013:

·   Negative provision of $1.9 million recorded in the second quarter as compared to expense of $171 thousand in the first quarter of 2013. The allowance for loan loss equaled $48.0 million at June 30, 2013, an increase of $884 thousand from March 31, 2013. The allowance for loan losses equaled 2.22% of gross loans held-for-investment and 66.93% of non-performing loans held-for-investment at June 30, 2013 as compared to 2.09% and 63.87%, respectively, at March 31, 2013 and 2.02% and 55.33%, respectively, at December 31, 2012.

·   Total risk-based capital equaled 14.80% at June 30, 2013, an increase of 59 basis points from 14.21% at March 31, 2013.

·   Sold $46.0 million of jumbo residential mortgage loans from the loan portfolio and signed a definitive agreement to sell another $27.3 million in the third quarter of 2013.

“This quarter, we continued to focus on improvement of our asset quality profile, positioning the balance sheet for a rising rate environment, and plans to deploy the excess liquidity we created in this process into stronger earning assets,” said Thomas X. Geisel, Sun's President and Chief Executive Officer.  “For the remainder of the year, we will sustain ongoing efforts to advance our corporate strategy, achieve opportunistic growth, further reduce risk and provide unsurpassed service to our customers.”

1

Discussion of Results:

Balance Sheet

● Total assets were $3.21 billion at June 30, 2013, as compared to $3.22 billion at March 31, 2013 and December 31, 2012.

● Cash and cash equivalents increased $130.6 million to $442.2 million at June 30, 2013 as compared to the linked quarter, primarily due to an increase in interest earning bank balances as a result of commercial loan paydowns generated from workout strategies and the aforementioned sale of jumbo residential mortgage loans.

● Gross loans held-for-investment were $2.16 billion at June 30, 2013, as compared to $2.25 billion at March 31, 2013 and $2.28 billion at December 31, 2012. Compared to the linked quarter, loans held-for-investment decreased $92.8 million.  This was primarily driven by a reduction of $60.9 million in commercial and industrial loans over that period due to the aforementioned paydowns.  Also, residential mortgage loans declined by $23.7 million as the sale of $46.0 million of jumbo residential mortgage loans and the transfer of $27.3 million of jumbo residential mortgage loans to loans held-for-sale at June 30, 2013 were partially offset by new originations.

Net Interest Income and Margin

● Net interest income decreased $1.3 million from the linked quarter to $21.8 million for the three months ended June 30, 2013. The net interest margin decreased 20 basis points to 2.96% for the three months ended June 30, 2013 from 3.16% for the linked quarter, and decreased 57 basis points as compared to the same quarter in 2012. The average yield on interest-earning assets decreased 20 basis points to 3.50% for the quarter ended June 30, 2013 from 3.70% for the linked quarter. This decrease was due to a corresponding decline in loan yields and an increase in cash during the current quarter. Sun Bancorp, Inc. had an average cash balance of $378.3 million in the second quarter of 2013, compared to an average cash balance of $252.0 million in the linked quarter. Commercial loan yields declined two basis points in the second quarter as compared to the linked quarter due to lower rates on new originations and residential real estate loan yields declined 47 basis points over the same period due to declines in rates and volume. The margin variance between the quarter ended June 30, 2013 and the comparable prior year period is due to similar factors as noted above.

● Mortgage loans sold during the quarter totaled $207.6 million as compared to $243.2 million in the previous quarter and $86 million in the comparable prior year quarter.  Of the sales during the second quarter, $46.0 million were long term fixed rate and long duration adjustable rate jumbo mortgage loans from the portfolio, which Sun National Bank sold to reduce interest rate risk.  Combining these sales with the sale of $51.5 million of 30 year fixed rate jumbo loans and the sale of $124.8 million of fixed rate investments in the first quarter of 2013, Sun National Bank has sold approximately $222 million of assets in the first six months of the year, with another $27.3 million of fixed rate jumbo residential mortgage loans pending sale in the third quarter. “Interest rates have been abnormally low for an extended period of time and we believe it is prudent to reduce long duration exposures at this time,” stated Tom Brugger, Chief Financial Officer. “We will continue to evaluate opportunities to manage our balance sheet to optimize our net interest margin in the coming quarters with a focus on building a quality earning asset portfolio which generates an increasing net interest margin, growing net interest income and low loan losses.”

Non-Interest Income

● Non-interest income was $10.2 million for the quarter ended June 30, 2013, compared to $10.9 million for the quarter ended March 31, 2013 and $7.0 million for the comparable prior year quarter. The decrease from the linked quarter was primarily attributable to a loss on the sale of available for sale securities of $47 thousand in the second quarter as compared to a gain of $3.5 million in the linked quarter. This was partially offset by an increase in net mortgage banking revenue of $2.2 million resulting primarily from the $1.5 million gain recognized as a result of the aforementioned sales of jumbo residential mortgage loans.  Also, the linked quarter value included a negative derivative credit valuation adjustment of $504 thousand compared to a positive adjustment of $6 thousand in the second quarter.

Non-Interest Expense

● Sun Bancorp, Inc. incurred $33.2 million of non-interest expense in the second quarter of 2013, an increase of $1.9 million over the linked quarter and an increase of $3.2 million over the comparable prior year quarter. Professional fees and real estate owned expenses increased by $2.1 million and $1.0 million, respectively, from the linked quarter. Professional fees have increased due to additional compliance related consulting expenses and real estate owned expenses increased due to the loss of $470 thousand on the sale of eight properties, including three former bank branches, and the write down of $322 thousand on two properties. These increases were partially offset by a decrease in salaries and employee benefits of $1.3 million.

Asset Quality

● During the second quarter, negative provision of $1.9 million was recorded, as compared to expense of $171 thousand in the linked quarter and $510 thousand in the comparable prior year quarter. The allowance for loan losses was $48.0 million at June 30, 2013, or 2.22% of gross loans held-for-investment, as compared to the ratio of the allowance for loan losses to gross loans held-for-investment of 2.09% at March 31, 2013 and 2.02% at December 31, 2012. Recoveries were $4.8 million in the second quarter of 2013, as compared to $4.6 million of recoveries recorded in the linked quarter. Recoveries in the second quarter were primarily driven by the payoff of one commercial real estate loan which resulted in a recovery of $3.0 million. Charge-offs recorded in the second quarter were $2.0 million, as compared to $3.5 million for the linked quarter and $1.8 million for the comparable prior year quarter.

● Total non-performing assets were $78.5 million, or 3.51% of total gross loans held-for-investment, loans held-for-sale and real estate owned at June 30, 2013, as compared to $82.3 million, or 3.57%, and $103.1 million, or 4.18%, respectively, at March 31, 2013 and December 31, 2012. Non-performing loans decreased $2.1 million over the linked quarter to $71.7 million at June 30, 2013 from $73.8 million at March 31, 2013 and decreased $23.9 million from $95.6 million at December 31, 2012. The decrease from the linked quarter was primarily due to a large payoff of a nonperforming loan, which also resulted in the $3.0 million recovery noted above.

Capital

● Shareholders’ equity totaled $261.7 million at June 30, 2013 compared to $264.3 million at March 31, 2013 and $262.6 million at December 31, 2012. Sun Bancorp, Inc.’s tangible equity to tangible assets ratio was 7.00% at June 30, 2013, as compared to 7.02% at March 31, 2013 and 6.95% at December 31, 2012.  At June 30, 2013, Sun Bancorp, Inc.’s total risk-based capital ratio, Tier 1 capital ratio and leverage capital ratio were approximately 14.80%, 12.91%, and 9.43%, respectively.  At June 30, 2013, Sun National Bank’s total risk-based capital ratio, Tier 1 capital ratio and leverage capital ratio were approximately 14.05%, 12.79%, and 9.33%, respectively. 

Sun Bancorp, Inc. will hold its regularly scheduled conference call on Thursday, July 25, 2013, at 11:00 a.m. (ET).  Participants may listen to the live web cast through the Sun Bancorp, Inc. website at www.sunnationalbank.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 Sun Bancorp, Inc. website for two weeks following the call.

Sun Bancorp, Inc. (NASDAQ: SNBC) is a $3.21 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 50-plus locations in New Jersey. Sun National Bank has been named one of Forbes Magazine's “Most Trustworthy Companies” for five years running.  Sun National 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.sunnationalbank.com.  

Cautionary Note Regarding Forward-Looking Statements

The foregoing material contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, concerning the financial condition, results of operations and business of Sun Bancorp, Inc.  Forward-looking statements are statements that include projections, predictions, expectations or beliefs about events or results or otherwise are not statements of historical facts, including statements about being well-positioned for rising interest rates, deploying excess liquidity into stronger earning assets, executing our corporate strategy, reducing long duration exposures, managing our balance sheet to optimize net interest margin, building a quality earning asset portfolio, growing net interest margin, lowering loan losses and reducing problem loans.  Actual results and trends could differ materially from those set forth in such statements and there can be no assurances that we will be well-positioned for rising interest rates, be able to deploy any excess liquidity into stronger earning assets, implement our corporate strategy as desired, reduce long duration exposures, manage our balance sheet to optimize net interest margin, build a quality earning asset portfolio, grow net interest margin, or further reduce loan losses or problem loans.  We caution that such statements are subject to a number of uncertainties, including those detailed under the headings “Risk Factors” and “Management’s Discussion and Analysis” in Sun Bancorp, Inc.’s Form 10-K for the fiscal year ended December 31, 2012, and its Form 10-Q for the quarter ended March 31, 2013, and in other filings made pursuant to the Securities Exchange Act of 1934, as amended.  Therefore, readers should not place undue reliance on any forward-looking statements.  Sun Bancorp, Inc. 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. Tax-equivalent interest income is a non-GAAP financial measure. Tax-equivalent interest income assumes a 35% marginal federal tax rate for all periods. The fully taxable equivalent adjustments for the three months ended June 30, 2013, March 31, 2013 and June 30, 2012 were $175 thousand, $212 thousand and $217 thousand, respectively. The fully taxable equivalent adjustments for the six months ended June 30, 2013 and June 30, 2012 were $387 thousand and $450 thousand.

Tax-equivalent interest income

The following reconciles net interest income to net interest income on a fully taxable equivalent basis using a 35% tax rate for the three and six months ended June 30, 2013 and 2012:

For Three Months Ended:	June 30,
	2013		2012
Net interest income	$	21,776		$  24,883
Effect of tax exempt income		175		217
Net interest income, tax equivalent basis	$	21,951		$  25,100

For Six Months Ended:	June 30,
	2013		2012
Net interest income	$	44,854		$  49,533
Effect of tax exempt income		387		450
Net interest income, tax equivalent basis	$	45,241		$  49,983

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SUN BANCORP, INC. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS (Unaudited)
(Dollars in thousands, except per share amounts)
	For the Three Months Ended												For the Six Months Ended
	June 30,												June 30,
		2013					2012						2013					2012
Profitability for the period:
Net interest income		$		21,776			$			24,883			$		44,854			$	49,533
Provision for loan losses				(1,883)						510					(1,712)				31,193
Non-interest income				10,211						6,962					21,093				12,481
Non-interest expense				33,192						30,022					64,528				57,586
Income (loss) before income taxes				678						1,313					3,131				(26,765		)
Net income (loss)				678						1,313					3,131				(26,765		)
Net income (loss) available to common shareholders		$		678			$			1,313			$		3,131			$	(26,765		)
Financial ratios:
Return on average assets(1)				0.08	%					0.17	%				0.19		%		(1.71)		%
Return on average equity(1)				1.03	%					1.84	%				2.38		%		(17.90)		%
Return on average tangible equity(1),(2)				1.22	%					2.17	%				2.81		%		(21.01)		%
Net interest margin(1)				2.96	%					3.53	%				3.06		%		3.51		%
Efficiency ratio				103.77	%					94.38	%				97.85		%		92.86		%
Earnings (loss) per common share:
Basic		$		0.01			$			0.02			$		0.04			$	(0.31		)
Diluted		$		0.01			$			0.02			$		0.04			$	(0.31		)
Average equity to average assets				8.17	%					9.17	%				8.18		%		9.53		%
			June 30,										December 31,
			2013			2012							2012
At period-end:
Total assets			$	3,205,921				$	3,133,484				$			3,224,031
Total deposits				2,722,038					2,608,034							2,713,224
Loans receivable, net of allowance for loan losses				2,110,785					2,193,492							2,230,287
Loans held-for-sale				69,417					24,672							120,935
Investments				361,149					549,849							461,980
Borrowings				69,071					50,274							70,992
Junior subordinated debentures				92,786					92,786							92,786
Shareholders’ equity				261,664					284,768							262,595
Credit quality and capital ratios:
Allowance for loan losses to gross loans     held-for-investment				2.22		%			2.29			%				2.02				%
Non-performing loans held-for-investment to gross loans     held-for-investment				3.32		%			4.63			%				3.64				%
Non-performing assets to gross loans held-for-investment, loans held-for-sale and real estate owned				3.51		%			4.84			%				4.18				%
Allowance for loan losses to non-performing loans held-for-investment				66.93		%			49.44			%				55.33				%
Total capital (to risk-weighted assets) (3):
Sun Bancorp, Inc.				14.80		%			14.61			%				13.72				%
Sun National Bank				14.05		%			13.90			%				13.02				%
Tier 1 capital (to risk-weighted assets) (3):
Sun Bancorp, Inc.				12.91		%			13.00			%				11.82				%
Sun National Bank				12.79		%			12.64			%				11.76				%
Leverage ratio:
Sun Bancorp, Inc.				9.43		%			10.45			%				9.30				%
Sun National Bank				9.33		%			10.15			%				9.24				%
Book value per common share			$	3.03				$	3.31					$		3.05
Tangible book value per common share			$	2.56				$	2.81					$		2.57
(1) Amounts for the three and six months ended are annualized.
(2) Return on average tangible equity is computed by dividing annualized net income for the period by average tangible equity. Average tangible equity equals average equity less average identifiable intangible assets and goodwill. (3) June 30, 2013 capital ratios are estimated, subject to regulatory filings.

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SUN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
(Dollars in thousands, except par value amounts)
	June 30, 2013			December 31, 2012
ASSETS
Cash and due from banks	$	71,290		$	77,564
Interest-earning bank balances		370,949			92,052
Cash and cash equivalents		442,239			169,616
Investment securities available for sale (amortized cost of $347,936 and $439,488 at June 30, 2013 and December 31, 2012, respectively)		343,052			443,182
Investment securities held to maturity (estimated fair value of $885 and $960 at June 30, 2013 and December 31, 2012, respectively)		855			912
Loans receivable (net of allowance for loan losses of $48,007 and $45,873 at June 30, 2013 and December 31, 2012, respectively)		2,110,785			2,230,287
Loans held-for-sale, at lower of cost or market		-			21,922
Loans held-for-sale, at fair value		69,417			99,013
Restricted equity investments, at cost		17,242			17,886
Bank properties and equipment, net		48,659			50,805
Real estate owned		6,743			7,473
Accrued interest receivable		6,817			8,054
Goodwill		38,188			38,188
Intangible assets		1,800			3,262
Deferred taxes, net		1,995			-
Bank owned life insurance (BOLI)		76,288			76,858
Other assets		41,841			56,573
Total assets	$	3,205,921		$	3,224,031
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits	$	2,722,038		$	2,713,224
Securities sold under agreements to repurchase – customers		562			1,968
Advances from the Federal Home Loan Bank of New York (FHLBNY)		61,037			61,415
Obligations under capital lease		7,472			7,609
Junior subordinated debentures		92,786			92,786
Deferred taxes, net		-			1,509
Other liabilities		60,362			82,925
Total liabilities		2,944,257			2,961,436
Shareholders’ equity:
Preferred stock, $1 par value, 1,000,000 shares authorized; none issued		-			-
Common stock, $1 par value, 200,000,000 shares authorized; 88,571,973 shares issued and 86,465,250 shares outstanding at June 30, 2013; 88,300,637 shares issued and 86,193,914 shares outstanding at December 31, 2012		88,572			88,301
Additional paid-in capital		507,365			506,537
Retained deficit		(304,880	)		(308,011	)
Accumulated other comprehensive (loss) income		(2,889	)		2,186
Deferred compensation plan trust		(342	)		(256	)
Treasury stock at cost, 2,106,723 shares at  June 30, 2013 and December 31, 2012		(26,162	)		(26,162	)
Total shareholders’ equity		261,664			262,595
Total liabilities and shareholders’ equity	$	3,205,921		$	3,224,031

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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 June 30,						For the Six Months Ended June 30,
		2013			2012			2013			2012
INTEREST INCOME
Interest and fees on loans	$	23,945		$	26,202		$	48,844		$	52,406
Interest on taxable investment securities		1,225			2,515			2,769			5,057
Interest on non-taxable investment securities		324			401			718			835
Dividends on restricted equity investments		217			284			463			511
Total interest income		25,711			29,402			52,794			58,809
INTEREST EXPENSE
Interest on deposits		2,945			3,447			5,960			7,131
Interest on funds borrowed		444			368			887			719
Interest on junior subordinated debentures		546			704			1,093			1,426
Total interest expense		3,935			4,519			7,940			9,276
Net interest income		21,776			24,883			44,854			49,533
PROVISION FOR LOAN LOSSES		(1,883	)		510			(1,712	)		31,193
Net Interest income after provision for loan losses		23,659			24,373			46,566			18,340
NON-INTEREST INCOME
Service charges on deposit accounts		2,250			2,810			4,479			5,551
Mortgage banking revenue, net		5,601			1,300			9,005			2,016
(Loss) gain on sale of investment securities		(47	)		430			3,440			430
Investment products income		728			748			1,407			1,180
BOLI income		486			492			934			1,009
Derivative credit valuation adjustment		6			(13	)		(498	)		(327	)
Other		1,187			1,195			2,326			2,622
Total non-interest income		10,211			6,962			21,093			12,481
NON-INTEREST EXPENSE
Salaries and employee benefits		13,019			13,497			27,311			27,244
Commission expense		2,556			2,259			4,597			3,283
Occupancy expense		3,081			3,271			6,657			6,320
Equipment expense		1,830			1,763			3,689			3,528
Amortization of intangible assets		541			921			1,462			1,842
Data processing expense		1,027			1,106			2,026			2,162
Professional fees		4,761			833			7,408			1,357
Insurance expenses		1,542			1,464			2,972			2,943
Advertising expense		698			1,008			1,251			1,305
Problem loan expense		1,023			1,274			1,822			2,751
Real estate owned expense, net		1,255			490			1,489			571
Office supplies expense		191			328			420			647
Other		1,668			1,808			3,424			3,633
Total non-interest expense		33,192			30,022			64,528			57,586
INCOME (LOSS) BEFORE INCOME TAXES		678			1,313			3,131			(26,765	)
INCOME TAX EXPENSE		-			-			-			-
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS	$	678		$	1,313		$	3,131		$	(26,765	)
Basic earnings (loss) per share	$	0.01		$	0.02		$	0.04		$	(0.31	)
Diluted earnings (loss) per share	$	`0.01		$	0.02		$	0.04		$	(0.31	)
Weighted average shares – basic	86,323,099			85,884,671			86,284,325			85,830,764
Weighted average shares - diluted	86,356,796			85,916,426			86,357,968			85,830,764

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SUN BANCORP, INC. AND SUBSIDIARIES
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in thousands)
	2013			2013			2012			2012			2012
	Q2			Q1			Q4			Q3			Q2
Balance sheet at quarter end:
Cash and cash equivalents	$	442,239		$	311,660		$	169,616		$	83,854		$	115,891
Investment securities		361,149			335,844			461,980			527,034			549,849
Loans held-for-investment:
Commercial and industrial		1,676,133			1,737,079			1,725,567			1,802,060			1,794,830
Home equity		195,938			200,084			207,720			212,911			217,768
Second mortgage		27,276			29,235			30,842			32,610			36,429
Residential real estate		225,147			248,875			273,413			224,346			153,373
Other		34,298			36,287			38,618			39,069			42,486
Total gross loans held-for-investment		2,158,792			2,251,560			2,276,160			2,310,996			2,244,886
Allowance for loan losses		(48,007	)		(47,124	)		(45,873	)		(49,016	)		(51,394	)
Net loans held-for-investment		2,110,785			2,204,436			2,230,287			2,261,980			2,193,492
Loans held-for-sale		69,417			41,469			120,935			60,676			24,672
Goodwill		38,188			38,188			38,188			38,188			38,188
Intangible assets		1,800			2,341			3,262			4,183			5,104
Total assets		3,205,921			3,227,146			3,224,031			3,180,263			3,133,487
Total deposits		2,722,038			2,723,337			2,713,224			2,646,807			2,608,034
Federal funds purchased		-			-			-			30,000			-
Securities sold under agreements to repurchase - customers		562			2,726			1,968			3,587			5,454
Advances from FHLBNY		61,037			61,077			61,415			16,749			22,080
Securities sold under agreements to repurchase - FHLBNY		-			-			-			20,000			15,000
Obligations under capital lease		7,472			7,541			7,609			7,675			7,740
Junior subordinated debentures		92,786			92,786			92,786			92,786			92,786
Total shareholders' equity		261,664			264,341			262,596			287,480			284,768
Quarterly average balance sheet:
Loans(1):
Commercial and industrial	$	1,719,278		$	1,744,553		$	1,788,347		$	1,805,623		$	1,815,704
Home equity		197,237			204,311			210,085			215,542			218,910
Second mortgage		28,679			30,347			32,442			35,816			38,545
Residential real estate		307,248			330,916			319,427			230,259			155,479
Other		28,929			30,410			32,444			33,658			34,765
Total gross loans		2,281,371			2,340,537			2,382,745			2,320,898			2,263,403
Securities and other interest-earning assets		680,659			607,284			545,781			555,846			583,788
Total interest-earning assets		2,962,030			2,947,821			2,928,526			2,876,744			2,847,191
Total assets		3,222,106			3,206,536			3,193,607			3,153,668			3,116,627
Non-interest-bearing demand deposits		531,210			506,600			511,813			504,936			493,707
Total deposits		2,722,651			2,703,039			2,660,405			2,642,048			2,604,083
Total interest-bearing liabilities		2,355,086			2,360,883			2,318,794			2,279,177			2,259,370
Total shareholders' equity		263,108			263,070			287,698			289,129			285,667
Capital and credit quality measures:
Total capital (to risk-weighted assets) (2):
Sun Bancorp, Inc.		14.80	%		14.21	%		13.72	%		14.30	%		14.61	%
Sun National Bank		14.05	%		13.52	%		13.02	%		13.63	%		13.90	%
Tier 1 capital (to risk-weighted assets) (2):
Sun Bancorp, Inc.		12.91	%		12.33	%		11.82	%		12.71	%		13.00	%
Sun National Bank		12.79	%		12.26	%		11.76	%		12.37	%		12.64	%
Leverage ratio:
Sun Bancorp, Inc.		9.43	%		9.40	%		9.30	%		10.41	%		10.45	%
Sun National Bank		9.33	%		9.34	%		9.24	%		10.12	%		10.15	%
Average equity to average assets		8.17	%		8.20	%		9.01	%		9.17	%		9.17	%
Allowance for loan losses to total gross loans held-for-investment		2.22	%		2.09	%		2.02	%		2.12	%		2.29	%
Non-performing loans held-for-investment to gross loans held-for-investment		3.32	%		3.28	%		3.64	%		5.23	%		4.63	%
Non-performing assets to gross loans held-for-investment, loans held-for-sale and real estate owned		3.51	%		3.57	%		4.18	%		5.32	%		4.84	%
Allowance for loan losses to non-performing loans held-for-investment		66.93	%		63.87	%		55.33	%		40.56	%		49.44	%
Other data:
Net recoveries (charge-offs)		2,766			1,080			(26,690	)		(4,246	)		(1,243	)
Non-performing assets:
Non-accrual loans	$	54,031		$	57,143		$	64,660		$	95,383		$	79,696
Non-accrual loans held-for-sale		-			-			10,224			-			-
Troubled debt restructurings, non-accrual		17,693			16,640			18,244			25,454			24,256
Troubled debt restructurings, held-for-sale		-			-			2,499			-			-
Loans past due 90 days and accruing		-			-			-			-			-
Real estate owned, net		6,743			8,472			7,473			5,513			6,116
Total non-performing assets		78,467			82,255			103,100			126,350			110,068
(1)Average balances include non-accrual loans and loans held-for-sale. (2)June 30, 2013 capital ratios are estimated, subject to regulatory filings.

6

SUN BANCORP, INC. AND SUBSIDIARIES
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in thousands, except share and per share amounts)
	2013			2013			2012			2012			2012
	Q2			Q1			Q4			Q3			Q2
Profitability for the quarter:
Tax-equivalent interest income	$	25,888		$	27,295		$	28,367		$	28,681		$	29,619
Interest expense		3,937			4,005			4,174			4,135			4,519
Tax-equivalent net interest income		21,951			23,290			24,191			24,546			25,100
Tax-equivalent adjustment		175			212			212			212			217
Provision for loan losses		(1,883	)		171			24,154			1,868			510
Non-interest income		10,211			10,882			6,815			9,588			7,527
Non-interest expense excluding amortization of intangible assets		32,651			30,415			30,677			29,938			29,666
Amortization of intangible assets		541			921			921			922			921
Income (loss) before income taxes		678			2,453			(24,956	)		1,194			1,313
Income tax benefit		-			-			-			(34	)		-
Net income (loss)		678			2,453			(24,956	)		1,228			1,313
Net income (loss) available to common shareholders	$	678		$	2,453		$	(24,956	)	$	1,228		$	1,313
Financial ratios:
Return on average assets (1)		0.08	%		0.31	%		(3.13)	%		0.16	%		0.17	%
Return on average equity (1)		1.03	%		3.73	%		(34.70)	%		1.70	%		1.84	%
Return on average tangible equity (1),(2)		1.22	%		4.42	%		(40.61)	%		1.99	%		2.17	%
Net interest margin (1)		2.96	%		3.16	%		3.30	%		3.41	%		3.53	%
Efficiency ratio		103.77	%		92.27	%		102.60	%		90.97	%		94.38	%
Per share data:
Income (loss) per common share:
Basic	$	0.01		$	0.03		$	(0.29	)	$	0.01		$	0.02
Diluted	$	0.01		$	0.03		$	(0.29	)	$	0.01		$	0.02
Book value	$	3.03		$	3.06		$	3.05		$	3.34		$	3.31
Tangible book value	$	2.56		$	2.59		$	2.57		$	2.85		$	2.81
Average basic shares	86,323,099			86,245,121			86,082,669			86,001,929			85,884,671
Average diluted shares	86,356,796			86,370,435			86,082,669			86,047,655			85,916,426
Non-interest income:
Service charges on deposit accounts	$	2,250		$	2,229		$	2,486		$	2,917		$	2,810
Mortgage banking revenue, net		5,601			3,404			3,694			4,204			1,300
Net (loss) gain on sale of investment securities		(47	)		3,487			(196	)		-			430
Investment products income		728			679			606			510			748
BOLI income		486			448			488			489			492
Derivative credit valuation adjustment		6			(504	)		(1,750	)		(198	)		(13	)
Other income		1,187			1,139			1,487			1,666			1,195
Total non-interest income	$	10,211		$	10,882		$	6,815		$	9,588		$	6,962
Non-interest expense:
Salaries and employee benefits	$	13,019		$	14,292		$	13,331		$	13,666		$	13,497
Commission expense		2,556			2,041			2,514			2,462			2,259
Occupancy expense		3,081			3,576			3,416			3,275			3,271
Equipment expense		1,830			1,859			2,005			1,866			1,763
Amortization of intangible assets		541			921			921			922			921
Data processing expense		1,027			999			1,138			1,084			1,106
Professional fees		4,761			2,647			1,389			713			833
Insurance expense		1,542			1,430			1,506			1,375			1,464
Advertising expense		698			553			1,040			464			1,008
Problem loan costs		1,023			799			776			2.154			1,274
Real estate owned expense, net		1,255			234			1,008			779			490
Office supplies expense		191			229			298			302			328
Other expense		1,668			1,756			2,256			1,798			1,808
Total non-interest expense	$	33,192		$	31,336		$	31,598		$	30,860		$	30,022
(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.

7

SUN BANCORP, INC. AND SUBSIDIARIES
AVERAGE BALANCE SHEETS (Unaudited)
(Dollars in thousands)
	For the Three Months Ended June 30,
	2013							2012
	Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Cost			Balance		Expense		Cost
Interest-earning assets:
Loans receivable (1),(2):
Commercial and industrial	$	1,719,278	$	18,622		4.33	%	$	1,815,704	$	21,123		4.65	%
Home equity		197,237		1,911		3.88			218,910		2,297		4.20
Second mortgage		28,679		432		6.03			38,545		550		5.71
Residential real estate		307,248		2,485		3.24			155,479		1,608		4.14
Other		28,929		495		6.84			34,765		624		7.18
Total loans receivable		2,281,371		23,945		4.20			2,263,403		26,202		4.63
Investment securities(3)		373,311		1,751		1.88			558,708		3,402		2.44
Interest-earning bank balances		307,348		192		0.25			25,080		15		0.24
Total interest-earning assets		2,962,030		25,888		3.50			2,847,191		29,619		4.16
Non-interest earning assets:
Cash and due from banks		70,968							72,472
Bank properties and equipment, net		49,192							53,164
Goodwill and intangible assets, net		40,256							43,745
Other assets		99,660							100,055
Total non-interest-earning assets		260,076							269,436
Total assets	$	3,222,106						$	3,116,627
Interest-bearing liabilities:
Interest-bearing deposit accounts:
Interest-bearing demand deposits	$	1,244,074	$	1,094		0.35	%	$	1,208,250	$	1,146		0.38	%
Savings deposits		269,624		220		0.33			262,947		217		0.33
Time deposits		677,743		1,632		0.96			639,179		2,084		1.30
Total interest-bearing deposit accounts		2,191,441		2,946		0.54			2,110,376		3,447		0.65
Short-term borrowings:
Federal funds purchased		-		-		-			8,956		9		0.40
Securities sold under agreements to repurchase - customers		2,304		1		0.17			5,807		2		0.14
Long-term borrowings:
FHLBNY advances (4)		61,051		318		2.08			33,675		229		2.72
Obligations under capital lease		7,504		125		6.66			7,770		129		6.64
Junior subordinated debentures		92,786		547		2.36			92,786		703		3.04
Total borrowings		163,645		991		2.42			148,994		1,072		2.88
Total interest-bearing liabilities		2,355,086		3,937		0.67			2,259,370		4,519		0.80
Non-interest bearing liabilities:
Non-interest-bearing demand deposits		531,210							493,707
Other liabilities		72,702							77,883
Total non-interest bearing liabilities		603,912							571,590
Total liabilities		2,958,998							2,830,960
Shareholders' equity		263,108							285,667
Total liabilities and shareholders' equity	$	3,222,106						$	3,116,627
Net interest income			$	21,951						$	25,100
Interest rate spread (5)						2.83	%						3.36	%
Net interest margin (6)						2.96	%						3.53	%
Ratio of average interest-earning assets to average interest-bearing liabilities						125.77	%						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 June 30, 2013 and 2012 were $175 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.

8

SUN BANCORP, INC. AND SUBSIDIARIES
AVERAGE BALANCE SHEETS (Unaudited)
(Dollars in thousands)
	For the Six Months Ended June 30,
	2013							2012
	Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Cost			Balance		Expense		Cost
Interest-earning assets:
Loans receivable (1),(2):
Commercial and industrial	$	1,731,846	$	37,581		4.34	%	$	1,832,460	$	42,398		4.63	%
Home equity		200,755		3,817		3.80			219,661		4,542		4.14
Second mortgage		29,508		860		5.83			39,946		1,140		5.71
Residential real estate		319,017		5,556		3.48			139,523		2,984		4.28
Other		29,665		1,030		6.94			38,249		1,342		7.02
Total loans receivable		2,310,791		48,844		4.23			2,269,839		52,406		4.62
Investment securities (3)		400,516		4,035		2.01			554,603		6,824		2.46
Interest-earning bank balances		243,658		303		0.25			27,465		31		0.23
Total interest-earning assets		2,954,965		53,182		3.60			2,851,907		59,261		4.16
Non-interest earning assets:
Cash and due from banks		71,867							72,111
Bank properties and equipment, net		49,774							53,751
Goodwill and intangible assets, net		40,618							44,206
Other assets		97,141							113,720
Total non-interest-earning assets		259,400							283,788
Total assets	$	3,214,365						$	3,135,695
Interest-bearing liabilities:
Interest-bearing deposit accounts:
Interest-bearing demand deposits	$	1,242,974	$	2,205		0.35	%	$	1,229,970	$	2,406		0.39	%
Savings deposits		267,519		435		0.33			262,575		446		0.34
Time deposits		683,433		3,321		0.97			629,967		4,280		1.36
Total interest-bearing deposit accounts		2,193,926		5,961		0.54			2,122,512		7,132		0.67
Short-term borrowings:
Federal funds purchased		-		-		-			7,665		14		0.37
Securities sold under agreements to repurchase - customers		2,613		2		0.15			6,238		4		0.13
Long-term borrowings:
FHLBNY advances (4)		61,105		634		2.08			25,597		443		3.46
Obligations under capital lease		7,538		251		6.66			7,802		259		6.64
Junior subordinated debentures		92,786		1,093		2.36			92,786		1,426		3.07
Total borrowings		164,042		1,980		2.41			140,088		2,146		3.06
Total interest-bearing liabilities		2,357,968		7,941		0.67			2,262,600		9,278		0.82
Non-interest bearing liabilities:
Non-interest-bearing demand deposits		518,973							490,398
Other liabilities		74,334							83,722
Total non-interest bearing liabilities		593,307							574,120
Total liabilities		2,951,275							2,836,720
Shareholders' equity		263,090							298,975
Total liabilities and shareholders' equity	$	3,214,365						$	3,135,695
Net interest income			$	45,241						$	49,983
Interest rate spread (5)						2.93	%						3.34	%
Net interest margin (6)						3.06	%						3.51	%
Ratio of average interest-earning assets to average interest-bearing liabilities						125.32	%						126.05	%
(1)  Average balances include non-accrual loans and loans held-for-sale.
(2)  Loan fees are included in interest income and the amount is not material for this analysis.
(3)  Interest earned on non-taxable investment securities is shown on a tax-equivalent basis assuming a 35% marginal federal tax rate for all periods. The fully taxable equivalent adjustments for the six months ended June 30, 2013 and 2012 were $387 thousand and $450 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 Three Months Ended
	June 30, 2013							March 31, 2013
	Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Cost			Balance		Expense		Cost
Interest-earning assets:
Loans receivable (1),(2):
Commercial and industrial	$	1,719,278	$	18,622		4.33	%	$	1,744,553	$	18,959		4.35	%
Home equity		197,237		1,911		3.88			204,311		1,906		3.73
Second mortgage		28,679		432		6.03			30,347		428		5.64
Residential real estate		307,248		2,485		3.24			330,916		3,071		3.71
Other		28,929		495		6.84			30,410		535		7.04
Total loans receivable		2,281,371		23,945		4.20			2,340,537		24,899		4.26
Investment securities(3)		373,311		1,751		1.88			428,024		2,285		2.14
Interest-earning bank balances		307,348		192		0.25			179,260		111		0.25
Total interest-earning assets		2,962,030		25,888		3.50			2,947,821		27,295		3.70
Non-interest earning assets:
Cash and due from banks		70,968							72,775
Bank properties and equipment, net		49,192							50,363
Goodwill and intangible assets, net		40,256							40,983
Other assets		99,660							94,594
Total non-interest-earning assets		260,076							258,715
Total assets	$	3,222,106						$	3,206,536
Interest-bearing liabilities:
Interest-bearing deposit accounts:
Interest-bearing demand deposits	$	1,244,074	$	1,094		0.35	%	$	1,241,861	$	1,111		0.36	%
Savings deposits		269,624		220		0.33			265,391		215		0.32
Time deposits		677,743		1,632		0.96			689,187		1,689		0.98
Total interest-bearing deposit accounts		2,191,441		2,946		0.54			2,196,439		3,015		0.55
Short-term borrowings:
Federal funds purchased		-		-		-			-		-		-
Securities sold under agreements to repurchase - customers		2,304		1		0.17			2,926		1		0.14
Long-term borrowings:
FHLBNY advances (4)		61,051		318		2.08			61,160		316		2.07
Obligations under capital lease		7,504		125		6.66			7,572		126		6.66
Junior subordinated debentures		92,786		547		2.36			92,786		547		2.36
Total borrowings		163,645		991		2.42			164,444		990		2.41
Total interest-bearing liabilities		2,355,086		3,937		0.67			2,360,883		4,005		0.68
Non-interest bearing liabilities:
Non-interest-bearing demand deposits		531,210							506,600
Other liabilities		72,702							75,983
Total non-interest bearing liabilities		603,912							582,583
Total liabilities		2,958,998							2,943,466
Shareholders' equity		263,108							263,070
Total liabilities and shareholders' equity	$	3,222,106						$	3,206,536
Net interest income			$	21,951						$	23,290
Interest rate spread (5)						2.83	%						3.02	%
Net interest margin (6)						2.96	%						3.16	%
Ratio of average interest-earning assets to average interest-bearing liabilities						125.77	%						126.07	%
(1)  Average balances include non-accrual loans and loans held-for-sale.
(2)  Loan fees are included in interest income and the amount is not material for this analysis.
(3)  Interest earned on non-taxable investment securities is shown on a tax-equivalent basis assuming a 35% marginal federal tax rate for all periods. The fully taxable equivalent adjustments for the three months ended June 30, 2013 and March 31, 2013 were $175 thousand and $212 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.