Sun Bancorp (SNBC) 8-K Sun Bancorp, Inc. Reports First Quarter 2014 Results

News Release

For Immediate Release

Contact:     Sidney R. Brown

    Chairman of the Board, Interim President and Chief Executive Officer (856) 690-4329

    Thomas R. Brugger

    Executive Vice President and Chief Financial Officer (856) 690-4233

    Thomas O’Brien

    Consultant to the Board of Directors (856) 690-4329

Sun Bancorp, Inc. Reports First Quarter 2014 Results

First Quarter Highlights

● Announced expected hiring of Thomas O’Brien as CEO, subject to regulatory non-objection

 ●Continued progress on expense control as non-interest expense declined by $4.6 million sequentially to $27.9 million

 ●Interest bearing cash averaged $220.1 million or 7.2% of average assets

 ●Tier 1 Leverage Ratio increased to 9.4% and the total risk based ratio increased to 14.9%

VINELAND, NJ – April 23, 2014 – Sun Bancorp, Inc. (NASDAQ: SNBC) (the “Company”) reported today a net loss available to common shareholders of $1.9 million, or a loss of $0.02 per diluted share, for the quarter ended March 31, 2014, compared to a net loss of $8.2 million, or a loss of $0.09 per diluted share, and net income of $2.5 million, or $0.03 per diluted share, for the fourth quarter of 2013 and the first quarter of 2013, respectively.

The following are key items and events that occurred during the first quarter of 2014:

 ●No provision for loan loss was recorded in the first quarter of 2014 compared to provision expense of $2.1 million in the fourth quarter of 2013. The allowance for loan losses equaled $33.8 million at March 31, 2014, a decrease of $1.8 million from December 31, 2013. The allowance for loan losses    equaled 1.62% of gross loans held-for-investment and 90.2% of non-performing loans at March 31, 2014 as compared to 1.66% and 93.6%, respectively, at December 31, 2013.

 ●Occupancy expense totaled $4.3 million, an increase of $860 thousand from the prior quarter, as winter weather related expenses totaled $1.0 million in the quarter ended March 31, 2014.

 ●Professional fees totaled $1.5 million in the first quarter of 2014 compared to $4.9 million in the prior quarter.

 ●Net interest margin was 3.07% in the first quarter of 2014 compared to 2.99% in the fourth quarter of 2013.
 

“We made good progress in the first quarter on expense reduction efforts, executing on our regulatory remediation efforts and enhancing the capital ratios of the Bank,” stated Sid Brown, Chairman, interim President and CEO.  “We are disappointed to report a loss but believe that we are taking the necessary steps to get the Bank back on the right path.  We are all looking forward to working with Tom O’Brien on returning the Bank to sustained profitability.  Tom O’Brien started working on April 2nd as a consultant to the Board of Directors and is expected to be appointed as CEO, subject to regulatory non-objection to his assumption of the positions of President and CEO.”

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Discussion of Results:

Balance Sheet

● Total assets were $3.04 billion at March 31, 2014, as compared to $3.09 billion at December 31, 2013.

● Cash and cash equivalents were $282.1 million at March 31, 2014, as compared to $267.8 million at December 31, 2013. The increase of $14.3 million in the first quarter of 2014 as compared to the prior quarter was primarily due to declining loan balances, including those held-for-sale, partially offset by a decrease in deposits.

● Gross loans held-for-investment were $2.08 billion at March 31, 2014, as compared to $2.14 billion at December 31, 2013, a decline of $53.6 million which was primarily due to loan paydowns.

● Deposits were $2.57 billion at March 31, 2014, as compared to $2.62 billion at December 31, 2013.  The decrease of $48.1 million in the first quarter of 2014 as compared to the prior quarter was primarily due to decreases in public funds deposits.

        Net Interest Income and Margin

● Net interest income decreased $543 thousand from the linked quarter to $21.4 million for the three months ended March 31, 2014. The net interest margin increased eight basis points to 3.07% for the three months ended March 31, 2014 from 2.99% for the linked quarter, and decreased nine basis points as compared to the first quarter of 2013. The average yield on interest-earning assets increased seven basis points to 3.54% for the three months ended March 31, 2014 from 3.47% for the three months ended December 31, 2013. The decrease between the quarter ended March 31, 2014 and the comparable prior year period is primarily due to a decline of $184.1 million in average commercial loans and an increase of $40.9 million in average interest earning bank balances. The increase from the linked quarter is due primarily to a decrease of $122.3 million in average interest bearing cash balances.

Non-Interest Income

● Non-interest income was $4.9 million for the quarter ended March 31, 2014, as compared to $4.7 million for the quarter ended December 31, 2013 and $10.9 million for the comparable prior year quarter. The increase from the linked quarter was primarily attributable to a decrease of $672 thousand in negative derivative credit valuation adjustments from the prior quarter partially offset by a decrease in net mortgage banking revenue of $365 thousand. The decrease in the negative derivative credit valuation adjustments from the prior quarter was primarily due to swap termination fees of $1.0 million recorded in the fourth quarter of 2013, compared to no swap termination fees recorded in the first quarter of 2014. Mortgage banking revenue, net, decreased from $1.0 million for the quarter ended December 31, 2013 to $635 thousand for the quarter ended March 31, 2014, which was due to lower production volume in a higher interest rate environment.

Non-Interest Expense

● Non-interest expense was $27.9 million in the first quarter of 2014, a decrease of $4.6 million compared to the linked quarter and a decrease of $3.4 million from the comparable prior year quarter.  In comparison to the linked quarter, decreases in professional fees, other real estate owned, advertising, commission expense, and salaries and employee benefits of $3.4 million, $385 thousand, $317 thousand, $201 thousand, and $186 thousand, respectively, were partially offset by an increase of $860 thousand in occupancy expense.  Professional fees declined as the Company reduced its reliance on regulatory compliance consulting services.   Commission expense has decreased due to reduced mortgage production volumes.  Occupancy expense for the first quarter includes $1.0 million of snow removal expenses.

Asset Quality

● During the first quarter of 2014, there was no provision expense recorded, as compared to provision expense of $2.1 million in the linked quarter and $171 thousand in the comparable prior year quarter. The allowance for loan losses was $33.8 million, or 1.62% of gross loans held-for-investment, at March 31, 2014, as compared to $35.5 million, or 1.66% of gross loans held-for-investment at December 31, 2013. Net charge-offs were $1.8 million in the first quarter of 2014, as compared to net charge-offs in the linked quarter of $15.5 million and net recoveries in the comparable prior year quarter of $1.1 million.

● Total non-performing assets were $40.2 million, or 1.91% of total gross loans held-for-investment, loans held-for-sale and real estate owned at March 31, 2014, as compared to $40.5 million, or 1.87%, at December 31, 2013. Non-performing loans decreased $531 thousand to $37.4 million at March 31, 2014 from $38.0 million at December 31, 2013.

Capital

● Shareholders’ equity totaled $248.9 million at March 31, 2014 compared to $245.3 million at December 31, 2013. The Company’s tangible equity to tangible assets ratio was 7.01% at March 31, 2014, as compared to 6.77% at December 31, 2013.  At March 31, 2014, the Company’s total risk-based capital ratio, Tier 1 capital ratio and leverage capital ratio were approximately 14.87%, 12.75%, and 9.40%, respectively.  At March 31, 2014, Sun National Bank’s total risk-based capital ratio, Tier 1 capital ratio and leverage capital ratio were approximately 14.08%, 12.83%, and 9.45%, respectively. 

The Company will hold its regularly scheduled conference call on Thursday April 24, 2014, at 11:00 a.m. (ET).  Participants may listen to the live webcast through the Company’s 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 Company’s website for two weeks following the call.

Sun Bancorp, Inc. (NASDAQ: SNBC) is a $3.04 billion asset bank holding company 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 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.  

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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 the Company.  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 reducing expenses, executing on our regulatory remediation efforts, enhancing our capital ratios and achieving sustained profitability in the future.  Actual results and trends could differ materially from those set forth in such statements and there can be no assurances that we will further reduce expenses, successfully execute on our regulatory remediation efforts, further enhance our capital ratios or achieve sustained profitability in the future. 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 of Financial Condition and Results of Operations” in the Company’s Form 10-K for the fiscal year ended December 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.  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 (Unaudited)

This news 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 March 31, 2014, December 31, 2013, September 30, 2013, June 30, 2013, and March 31, 2013 were $166 thousand, $167 thousand, $167 thousand, $175 thousand, and $212 thousand, respectively. This release also references tangible book value per common share. Tangible book value per common share is a non-GAAP financial measure.  Tangible book value per common share is a ratio of tangible equity, shareholders’ equity less intangible assets, to outstanding common shares. Intangible assets at March 31, 2014, December 31, 2013, September 30, 2013, June 30, 2013, and March 31, 2013 were $38.7 million, $39.0 million, $39.4 million, $40.0 million, and $40.5 million, respectively.

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 months ended March 31, 2014, December 31, 2013, September 30, 2013, June 30, 2013, and March 31, 2013.

For Three Months Ended:	March 31, 2014		December 31, 2013		September 30, 2013		June 30, 2013		March 31, 2013
Net interest income	$	21,392	$	21,935	$	22,980	$	21,776	$	23,078
Effect of tax exempt income		166		167		167		175		212
Net interest income, tax equivalent basis	$	21,558	$	22,102	$	23,147	$	21,951	$	23,290

Tangible book value per common share

The following reconciles shareholders’ equity to tangible equity by reducing shareholders’ equity by the intangible asset balance at March 31, 2014, December, 31, 2013, September 30, 2013, June 30, 2013, and March 31, 2013.

	March 31, 2014		December 31, 2013		September 30, 2013		June 30, 2013		March 31, 2013
Tangible book value per common share:
Shareholders’ equity	$	248,898	$	245,337	$	257,140	$	261,664	$	264,341
Less: Intangible assets		38,709		38,993		39,448		39,988		40,529
Tangible equity	$	210,189	$	206,344	$	217,692	$	221,676	$	223,812
Common stock		88,709		88,711		88,618		88,572		88,403
Less: Treasury stock		1,943		1,997		2,068		2,107		2,107
Total outstanding shares		86,766		86,714		86,550		86,465		86,296
Tangible book value per common share:	$	2.42	$	2.38	$	2.52	$	2.56	$	2.59

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SUN BANCORP, INC. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS (Unaudited)
(Dollars in thousands, except share and per share amounts)
	For the Three Months Ended
	March 31,												December 31,
		2014					2013						2013
Profitability for the period:
Net interest income		$		21,392			$			23,078			$			21,935
Provision for loan losses				-						171						2,135
Non-interest income				4,949						10,882						4,742
Non-interest expense				27,888						31,336						32,457
(Loss) income before income taxes				(1,547	)					2,453						(7,915		)
Income tax expense				359						-						297
Net (loss) income available to common shareholders		$		(1,906	)		$			2,453			$			(8,212		)
Financial ratios:
Return on average assets(1)				(0.25)	%					0.31	%					(1.02)		%
Return on average equity(1)				(3.04)	%					3.73	%					(12.79)		%
Return on average tangible equity(1),(2)				(3.59)	%					4.42	%					(15.10)		%
Net interest margin(1)				3.07	%					3.16	%					2.99		%
Efficiency ratio				105.87	%					92.27	%					121.67		%
(Loss) earnings per common share:
Basic		$		(0.02	)		$			0.03			$			(0.09		)
Diluted		$		(0.02	)		$			0.03			$			(0.09		)
Average equity to average assets				8.23	%					8.20	%					8.01		%
			March 31,										December 31,
			2014			2013							2013
At period-end:
Total assets			$	3,038,467				$	3,227,146				$		3,087,553
Total deposits				2,573,445					2,723,337						2,621,571
Loans receivable, net of allowance for loan losses				2,050,312					2,204,436						2,102,167
Loans held-for-sale				16,048					41,469						20,662
Investments				456,724					335,844						457,797
Borrowings				68,645					71,344						68,765
Junior subordinated debentures				92,786					92,786						92,786
Shareholders’ equity				248,898					264,341						245,337
Credit quality and capital ratios:
Allowance for loan losses to gross loans held-for- investment				1.62		%			2.09			%			1.66		%
Non-performing loans held-for-investment to gross loans     held-for-investment				1.80		%			3.28			%			1.78		%
Non-performing assets to gross loans held-for-investment, loans held-for-sale and real estate owned				1.91		%			3.57			%			1.87		%
Allowance for loan losses to non-performing loans held-for-investment				90.18		%			63.87			%			93.57		%
Total capital (to risk-weighted assets) (3):
Sun Bancorp, Inc.				14.87		%			14.21			%			14.41		%
Sun National Bank				14.08		%			13.50			%			13.65		%
Tier 1 capital (to risk-weighted assets) (3):
Sun Bancorp, Inc.				12.75		%			12.32			%			12.34		%
Sun National Bank				12.83		%			12.25			%			12.40		%
Leverage ratio:
Sun Bancorp, Inc.				9.40		%			9.40			%			8.99		%
Sun National Bank				9.45		%			9.33			%			9.02		%
Book value per common share			$	2.87				$	3.06					$	2.83
Tangible book value per common share			$	2.42				$	2.59					$	2.38
(1) Amounts for the three 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) March 31, 2014 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)
	March 31, 2014			December 31, 2013
ASSETS
Cash and due from banks	$	49,850		$	38,075
Interest-earning bank balances		232,245			229,687
Cash and cash equivalents		282,095			267,762
Restricted cash		26,000			26,000
Investment securities available for sale (amortized cost of $442,681 and $452,023 at March 31, 2014 and December 31, 2013, respectively)		439,405			440,097
Investment securities held to maturity (estimated fair value of $664 and $692 at March 31, 2014 and December 31, 2013, respectively)		655			681
Loans receivable (net of allowance for loan losses of $33,768 and $35,537 at March 31, 2014 and December 31, 2013, respectively)		2,050,312			2,102,167
Loans held-for-sale, at fair value		16,048			20,662
Restricted equity investments, at cost		16,664			17,019
Bank properties and equipment, net		48,008			49,095
Real estate owned		2,728			2,503
Accrued interest receivable		6,889			7,112
Goodwill		38,188			38,188
Intangible assets, net		521			805
Deferred taxes, net		682			4,575
Bank owned life insurance (BOLI)		77,697			77,236
Other assets		32,575			33,651
Total assets	$	3,038,467		$	3,087,553
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits	$	2,573,445		$	2,621,571
Securities sold under agreements to repurchase – customers		471			478
Advances from the Federal Home Loan Bank of New York (FHLBNY)		60,915			60,956
Obligations under capital lease		7,259			7,331
Junior subordinated debentures		92,786			92,786
Other liabilities		54,693			59,094
Total liabilities		2,789,569			2,842,216
Shareholders’ equity:
Preferred stock, $1 par value, 1,000,000 shares authorized; none issued		-			-
Common stock, $1 par value, 200,000,000 shares authorized; 88,709,281 shares issued and 86,766,358 shares outstanding at March 31, 2014; 88,711,035 shares issued and 86,714,414 shares outstanding at December 31, 2012		88,709			88,711
Additional paid-in capital		506,101			506,719
Retained deficit		(319,860	)		(317,954	)
Accumulated other comprehensive loss		(1,938	)		(7,055	)
Deferred compensation plan trust		(502	)		(522	)
Treasury stock at cost, 1,942,923 shares at March 31, 2014; and 1,996,621 shares at December 31, 2013		(23,612	)		(24,562	)
Total shareholders’ equity		248,898			245,337
Total liabilities and shareholders’ equity	$	3,038,467		$	3,087,553

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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 March 31,
		2014			2013
INTEREST INCOME
Interest and fees on loans	$	21,849		$	24,899
Interest on taxable investment securities		2,250			1,544
Interest on non-taxable investment securities		309			394
Dividends on restricted equity investments		232			246
Total interest income		24,640			27,083
INTEREST EXPENSE
Interest on deposits		2,281			3,015
Interest on funds borrowed		436			443
Interest on junior subordinated debentures		531			547
Total interest expense		3,248			4,005
Net interest income		21,392			23,078
PROVISION FOR LOAN LOSSES		-			171
Net interest income after provision for loan losses		21,392			22,907
NON-INTEREST INCOME
Service charges on deposit accounts		2,151			2,229
Mortgage banking revenue, net		635			3,404
Gain on sale of investment securities		-			3,487
Investment products income		617			679
BOLI income		461			448
Derivative credit valuation adjustment		(38	)		(504	)
Other		1,123			1,139
Total non-interest income		4,949			10,882
NON-INTEREST EXPENSE
Salaries and employee benefits		12,884			14,292
Commission expense		897			2,041
Occupancy expense		4,266			3,576
Equipment expense		1,749			1,859
Amortization of intangible assets		284			921
Data processing expense		1,197			999
Professional fees		1,486			2,647
Insurance expenses		1,467			1,430
Advertising expense		586			553
Problem loan expense		632			799
Real estate owned expense, net		144			234
Office supplies expense		251			229
Other		2,045			1,756
Total non-interest expense		27,888			31,336
(LOSS) INCOME BEFORE INCOME TAXES		(1,547	)		2,453
INCOME TAX EXPENSE		359			-
NET (LOSS) INCOME AVAILABLE TO COMMON SHAREHOLDERS	$	(1,906	)	$	2,453
Basic (loss) earnings per share	$	(0.02	)	$	0.03
Diluted (loss) earnings per share	$	(0.02	)	$	0.03
Weighted average shares – basic	87,185,839			86,245,121
Weighted average shares - diluted	87,185,839			86,370,435

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SUN BANCORP, INC. AND SUBSIDIARIES
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in thousands)
	2014			2013			2013			2013			2013
	Q1			Q4			Q3			Q2			Q1
Balance sheet at quarter end:
Cash and cash equivalents	$	282,095		$	267,762		$	427,583		$	416,239		$	285,660
Restricted cash		26,000			26,000			26,000			26,000			26,000
Investment securities		456,724			457,797			425,029			361,149			335,844
Loans held-for-investment:
Commercial and industrial		1,519,993			1,587,566			1,636,856			1,676,133			1,737,079
Home equity		184,936			188,478			192,135			195,938			200,084
Second mortgage		23,312			25,279			26,028			27,276			29,235
Residential real estate		326,945			305,552			281,537			225,147			248,875
Other		28,894			30,829			32,984			34,298			36,287
Total gross loans held-for-investment		2,084,080			2,137,704			2,169,540			2,158,792			2,251,560
Allowance for loan losses		(33,768	)		(35,537	)		(48,854	)		(48,007	)		(47,124	)
Net loans held-for-investment		2,050,312			2,102,167			2,120,686			2,110,785			2,204,436
Loans held-for-sale		16,048			20,662			18,707			69,417			41,469
Goodwill		38,188			38,188			38,188			38,188			38,188
Intangible assets		521			805			1,260			1,800			2,341
Total assets		3,038,467			3,087,553			3,236,321			3,205,921			3,227,146
Total deposits		2,573,445			2,621,571			2,752,693			2,722,038			2,723,337
Securities sold under agreements to repurchase - customers		471			478			554			562			2,726
Advances from FHLBNY		60,915			60,956			60,997			61,037			61,077
Obligations under capital lease		7,259			7,331			7,402			7,472			7,541
Junior subordinated debentures		92,786			92,786			92,786			92,786			92,786
Total shareholders' equity		248,898			245,337			257,140			261,664			264,341
Quarterly average balance sheet:
Loans(1):
Commercial and industrial	$	1,560,442		$	1,621,222		$	1,671,302		$	1,719,278		$	1,744,553
Home equity		187,052			190,394			194,622			197,237			204,311
Second mortgage		24,863			26,142			27,041			28,679			30,347
Residential real estate		331,433			312,977			299,667			307,248			330,916
Other		25,014			26,134			27,723			28,929			30,410
Total gross loans		2,128,804			2,176,869			2,220,355			2,281,371			2,340,537
Securities and other interest-earning assets		677,850			782,200			763,575			680,659			607,284
Total interest-earning assets		2,806,654			2,959,069			2,983,930			2,962,030			2,947,821
Total assets		3,049,321			3,205,900			3,264,884			3,222,053			3,206,536
Non-interest-bearing demand deposits		559,606			585,530			549,684			531,210			506,600
Total deposits		2,584,588			2,718,905			2,746,820			2,722,646			2,703,039
Total interest-bearing liabilities		2,186,394			2,295,072			2,358,923			2,355,081			2,360,883
Total shareholders' equity		250,946			256,783			260,701			263,108			263,070
Capital and credit quality measures:
Total capital (to risk-weighted assets) (2):
Sun Bancorp, Inc.		14.87	%		14.41	%		14.72	%		14.80	%		14.21	%
Sun National Bank		14.08	%		13.65	%		13.96	%		14.05	%		13.50	%
Tier 1 capital (to risk-weighted assets) (2):
Sun Bancorp, Inc.		12.75	%		12.34	%		12.76	%		12.91	%		12.32	%
Sun National Bank		12.83	%		12.40	%		12.70	%		12.79	%		12.25	%
Leverage ratio:
Sun Bancorp, Inc.		9.40	%		8.99	%		9.13	%		9.43	%		9.40	%
Sun National Bank		9.45	%		9.02	%		9.09	%		9.33	%		9.33	%
Average equity to average assets		8.23	%		8.01	%		7.99	%		8.17	%		8.20	%
Allowance for loan losses to total gross loans held-for-investment		1.62	%		1.66	%		2.25	%		2.22	%		2.09	%
Non-performing loans held-for-investment to gross loans held-for-investment		1.80	%		1.78	%		2.55	%		3.32	%		3.28	%
Non-performing assets to gross loans held-for-investment, loans held-for-sale and real estate owned		1.91	%		1.87	%		2.76	%		3.51	%		3.57	%
Allowance for loan losses to non-performing loans held-for-investment		90.18	%		93.57	%		88.19	%		66.93	%		63.87	%
Other data:
Net (charge-offs) recoveries		(1,768	)		(15,452	)		123			2,766			1,080
Non-performing assets:
Non-accrual loans	$	29,387		$	29,811		$	44,976		$	54,031		$	57,151
Troubled debt restructurings, non-accrual		8,017			8,166			10,419			17,693			16,632
Loans past due 90 days and accruing		42			-			-			-			-
Real estate owned, net		2,728			2,503			5,059			6,743			8,472
Total non-performing assets	$	40,174		$	40,480			60,454			78,467		$	82,255
(1)Average balances include non-accrual loans and loans held-for-sale (2)March 31, 2014 capital ratios are estimated, subject to regulatory filings.

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SUN BANCORP, INC. AND SUBSIDIARIES
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in thousands, except share and per share amounts)
	2014			2013			2013			2013			2013
	Q1			Q4			Q3			Q2			Q1
Profitability for the quarter:
Tax-equivalent interest income	$	24,806		$	25,667		$	26,955		$	25,886		$	27,295
Interest expense		3,248			3,565			3,808			3,935			4,005
Tax-equivalent net interest income		21,558			22,102			23,147			21,951			23,290
Tax-equivalent adjustment		166			167			167			175			212
Provision for loan losses		-			2,135			724			(1,883	)		171
Non-interest income		4,949			4,742			5,799			10,258			10,882
Non-interest expense excluding amortization of intangible assets		27,604			32,002			32,377			32,698			30,415
Amortization of intangible assets		284			455			540			541			921
(Loss) income before income taxes		(1,547	)		(7,915	)		(4,862	)		678			2,453
Income tax expense		359			297			-			-			-
Net (loss) income		(1,906	)		(8,212	)		(4,862	)		678			2,453
Net (loss) income available to common shareholders	$	(1,906	)	$	(8,212	)	$	(4,862	)	$	678		$	2,453
Financial ratios:
Return on average assets (1)		(0.25)	%		(1.02)	%		(0.60)	%		0.08	%		0.31	%
Return on average equity (1)		(3.04)	%		(12.79)	%		(7.46)	%		1.03	%		3.73	%
Return on average tangible equity (1),(2)		(3.59)	%		(15.10)	%		(8.80)	%		1.22	%		4.42	%
Net interest margin (1)		3.07	%		2.99	%		3.10	%		2.96	%		3.16	%
Efficiency ratio		105.87	%		121.67	%		114.38	%		103.77	%		92.27	%
Per share data:
(Loss) income per common share:
Basic	$	(0.02	)	$	(0.09	)	$	(0.06	)	$	0.01		$	0.03
Diluted	$	(0.02	)	$	(0.09	)	$	(0.06	)	$	0.01		$	0.03
Book value	$	2.84		$	2.83		$	2.97		$	3.03		$	3.06
Tangible book value	$	2.42		$	2.38		$	2.52		$	2.56		$	2.59
Average basic shares	87,185,839			86,583,363			86,499,587			86,323,099			86,245,121
Average diluted shares	87,185,839			86,583,363			86,499,587			86,356,796			86,370,435
Non-interest income:
Service charges on deposit accounts	$	2,151		$	2,263		$	2,314		$	2,250		$	2,229
Mortgage banking revenue, net		635			1,000			1,593			5,601			3,404
Net gain on sale of investment securities		-			-			2						3,487
Investment products income		617			599			678			728			679
BOLI income		461			466			482			486			448
Derivative credit valuation adjustment		(38	)		(710	)		(380	)		6			(504	)
Other income		1,123			1,124			1,110			1,187			1,139
Total non-interest income	$	4,949		$	4,742		$	5,799		$	10,258		$	10,882
Non-interest expense:
Salaries and employee benefits	$	12,884		$	13,070		$	12,656		$	13,019		$	14,292
Commission expense		897			1,098			2,001			2,556			2,041
Occupancy expense		4,266			3,406			3,456			3,081			3,576
Equipment expense		1,749			1,871			1,796			1,830			1,859
Amortization of intangible assets		284			455			540			541			921
Data processing expense		1,197			1,223			995			1,027			999
Professional fees		1,486			4,891			5,947			4,761			2,647
Insurance expense		1,467			1,498			1,496			1,542			1,430
Advertising expense		586			903			676			698			553
Problem loan costs		632			769			816			1,023			799
Real estate owned expense, net		144			529			252			1,255			234
Office supplies expense		251			245			192			191			229
Other expense		2,045			2,499			2,094			1,715			1,756
Total non-interest expense	$	27,888		$	32,457		$	32,917		$	33,239		$	31,336
(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.

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SUN BANCORP, INC. AND SUBSIDIARIES
AVERAGE BALANCE SHEETS (Unaudited)
(Dollars in thousands)
	For the Three Months Ended March 31,
	2014							2013
	Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Cost			Balance		Expense		Cost
Interest-earning assets:
Loans receivable (1),(2):
Commercial and industrial	$	1,560,442	$	16,349		4.19	%	$	1,744,553		18,959		4.35	%
Home equity		187,052		1,762		3.77			204,311		1,906		3.73
Second mortgage		24,863		357		5.74			30,347		428		5.64
Residential real estate		331,433		2,958		3.57			330,916		3,071		3.71
Other		25,014		423		6.76			30,410		535		7.04
Total loans receivable		2,128,804		21,849		4.11			2,340,537		24,899		4.26
Investment securities(3)		457,737		2,818		2.46			428,024		2,285		2.14
Interest-earning bank balances		220,113		139		0.25			179,260		111		0.25
Total interest-earning assets		2,806,654		24,806		3.54			2,947,821		27,295		3.70
Non-interest earning assets:
Cash and due from banks		67,342							72,775
Bank properties and equipment, net		48,605							50,363
Goodwill and intangible assets, net		38,852							40,983
Other assets		87,868							94,594
Total non-interest-earning assets		242,667							258,715
Total assets	$	3,049,321						$	3,206,536
Interest-bearing liabilities:
Interest-bearing deposit accounts:
Interest-bearing demand deposits	$	1,149,460	$	808		0.28	%	$	1,241,861		1,111		0.36	%
Savings deposits		267,305		180		0.27			265,391		215		0.32
Time deposits		608,217		1,293		0.85			689,187		1,689		0.98
Total interest-bearing deposit accounts		2,024,982		2,281		0.45			2,196,439		3,015		0.55
Short-term borrowings:
Securities sold under agreements to repurchase - customers		404		-		-			2,926		1		0.14
Long-term borrowings:
FHLBNY advances (4)		60,929		313		2.05			61,160		316		2.07
Obligations under capital lease		7,293		123		6.75			7,572		126		6.66
Junior subordinated debentures		92,786		531		2.29			92,786		547		2.36
Total borrowings		161,412		967		2.40			164,444		990		2.41
Total interest-bearing liabilities		2,186,394		3,248		0.59			2,360,883		4,005		0.68
Non-interest bearing liabilities:
Non-interest-bearing demand deposits		559,606							506,600
Other liabilities		52,375							75,983
Total non-interest bearing liabilities		611,981							582,583
Total liabilities		2,798,375							2,943,466
Shareholders' equity		250,946							263,070
Total liabilities and shareholders' equity	$	3,049,321						$	3,206,536
Net interest income			$	21,558						$	23,290
Interest rate spread (5)						2.95	%						3.02	%
Net interest margin (6)						3.07	%						3.16	%
Ratio of average interest-earning assets to average interest-bearing liabilities						128.37	%						124.86	%
(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 March 31, 2014 and 2013 were $166 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.

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SUN BANCORP, INC. AND SUBSIDIARIES
AVERAGE BALANCE SHEETS (Unaudited)
(Dollars in thousands)
	For the Three Months Ended
	March 31, 2014							December 31, 2013
	Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Cost			Balance		Expense		Cost
Interest-earning assets:
Loans receivable (1),(2):
Commercial and industrial	$	1,560,442	$	16,349		4.19	%	$	1,621,222	$	17,406		4.29	%
Home equity		187,052		1,762		3.77			190,394		1,853		3.89
Second mortgage		24,863		357		5.74			26,142		367		5.62
Residential real estate		331,433		2,958		3.57			312,977		2,671		3.41
Other		25,014		423		6.76			26,134		456		6.98
Total loans receivable		2,128,804		21,849		4.11			2,176,869		22,753		4.18
Investment securities (3)		457,737		2,818		2.46			439,788		2,693		2.45
Interest-earning bank balances		220,113		139		0.25			342,412		221		0.26
Total interest-earning assets		2,806,654		24,806		3.54			2,959,069		25,667		3.47
Non-interest earning assets:
Cash and due from banks		67,342							66,662
Bank properties and equipment, net		48,605							49,300
Goodwill and intangible assets, net		38,852							39,190
Other assets		87,868							91,679
Total non-interest-earning assets		242,667							246,831
Total assets	$	3,049,321						$	3,205,900
Interest-bearing liabilities:
Interest-bearing deposit accounts:
Interest-bearing demand deposits	$	1,149,460	$	808		0.28	%	$	1,223,184	$	960		0.31	%
Savings deposits		267,305		180		0.27			268,196		195		0.29
Time deposits		608,217		1,293		0.85			641,995		1,421		0.89
Total interest-bearing deposit accounts		2,024,982		2,281		0.45			2,133,375		2,576		0.48
Short-term borrowings:
Fed Funds Purchased		-		-		-			54		-		-
Securities sold under agreements to repurchase - customers		404		-		-			512		-		-
Long-term borrowings:
FHLBNY advances (4)		60,929		313		2.05			60,981		320		2.10
Obligations under capital lease		7,293		123		6.75			7,364		124		6.74
Junior subordinated debentures		92,786		531		2.29			92,786		545		2.35
Total borrowings		161,412		967		2.40			161,697		989		2.45
Total interest-bearing liabilities		2,186,394		3,248		0.59			2,295,072		3,565		0.62
Non-interest bearing liabilities:
Non-interest-bearing demand deposits		559,606							585,530
Other liabilities		52,375							68,515
Total non-interest bearing liabilities		611,981							654,045
Total liabilities		2,798,375							2,949,117
Shareholders' equity		250,946							256,783
Total liabilities and shareholders' equity	$	3,049,321						$	3,205,900
Net interest income			$	21,558						$	22,102
Interest rate spread (5)						2.95	%						2.85	%
Net interest margin (6)						3.07	%						2.99	%
Ratio of average interest-earning assets to average interest-bearing liabilities						128.37	%						128.93	%
(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 March 31, 2014 and December 31, 2013 were $166 thousand and $167 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.

-12-