Sun Bancorp (SNBC) 8-K Results of Operations and Financial Condition

For Immediate Release

Sun Bancorp, Inc. Announces 3Q 2014 Earnings; Significant Progress on Restructuring Initiative; Improved Capital Ratios and Asset Quality; Management Team Enhancements

Contact:                 Mike Dinneen

Senior Vice President, Director of Marketing

(856) 552-5013

mdinneen@sunnb.com

MOUNT LAUREL, N.J. – October 22, 2014 –

Third Quarter Highlights

·   Significant progress in executing comprehensive strategic restructuring initiative.

·   Successfully exited mortgage banking business, asset based lending and other high risk loan relationships.

·   Non-interest expense fell 27% to $24.1 million versus $32.9 million in the year ago quarter.

·   Successful completion of $20 million common equity raise: Sun Bancorp, Inc. Tier 1 Leverage Ratio increased to 9.8%

·   Planned balance sheet reduction led to a $180 million decline in loans during the quarter.

·   Average interest-earning cash balances grew by 67% during the quarter to $406 million.

·   Continued improvement in asset quality as non-performing loans held-for-investment fell to $14.1 million, or 0.8% of loans, from $55.4 million, or 2.6% of loans, one year ago.

Sun Bancorp, Inc. (NASDAQ: SNBC) (the "Company"), the holding company for Sun National Bank (the “Bank”), reported today a net loss of $825 thousand, or a loss of $0.05 per diluted share, for the quarter ended September 30, 2014, compared to a net loss of $24.2 million, or a loss of $1.39 per diluted share, and a net loss of $4.9 million, or a loss of $0.28 per diluted share, for the second quarter of 2014 and the third quarter of 2013, respectively.  On a pre-tax basis, the Company had a loss of $516 thousand for the quarter ended September 30, 2014, compared to a pre-tax loss of $23.9 million and a pre-tax loss of $4.9 million for the second quarter of 2014 and the third quarter of 2013, respectively.

“During the third quarter, we successfully executed on all facets of our restructuring plans, and are now witnessing the initial impact.  While there remains much work ahead, we have made significant, transformational progress towards achieving the platform that will support our long-term success,” said President & CEO Thomas M. O’Brien.  “We have aggressively confronted both the substantial legacy barriers to performance, and at the same time have started to build a platform that can support meaningful revenue generation and growth.”

Discussion of Results:

Balance Sheet

The Company continues to execute on its previously stated objective of shrinking the balance sheet.  Overall in the third quarter, the Company reduced assets by $74.8 million.  This included reductions of $179.7 million in gross loans held-for-investment, $21.8 million in loans held-for-sale and $29.0 million in investments, partially offset by an increase of $173.9 million in cash and cash equivalents. Deposit balances declined by $102.1 million in the third quarter of 2014 to $2.17 billion due to planned deposit run-off, primarily related to public funds balances.

“Although we have experienced a year over year reduction in overall deposit balances, this was planned as certain non-strategic, higher rate deposit segments were re-priced.  We are continuing to emphasize building profitable business relationships with our commercial and consumer clients and we are pleased with the progress in this respect,” said O’Brien.

The Company had $26.3 million in loans held-for-sale and $192.1 million in deposits held-for-sale at September 30, 2014 related to the pending sale of seven branches to Sturdy Savings Bank which is scheduled to close in the first quarter of 2015.  Sturdy Savings Bank recently received all regulatory approval required for the acquisition of the branches and systems conversion planning has begun.  A first quarter 2015 transaction close remains the target.

Net Interest Income and Margin

The net interest margin declined 16 basis points to 2.87% for the three months ended September 30, 2014 from 3.03% in the linked quarter as commercial loan balances continue to decline and the Company’s cash balances remain elevated.  Average interest-earning deposits grew to $405.8 million, up $162.8 million from the linked quarter.  With the elevated level of loan payoffs, we saw an increase in prepayment penalties during the quarter which had a positive impact on net interest income.  Prepayment penalties totaled approximately $691 thousand in the quarter which boosted the net interest margin by 11 basis points.  These fees offset what would have been a larger decrease in net interest income for the quarter.  We expect to see prepayment penalty revenue decline in the coming quarters as payoffs normalize.

“The plan to significantly de-risk the loan portfolio inevitably leads to building liquidity.  It is a price that we fully anticipated and one that we believe is entirely prudent given the circumstances.  While our liquidity levels are expected to remain elevated, we have begun to build a focused commercial lending platform through which we can begin to deploy our excess cash balances into quality commercial loans,” said O’Brien.  “With new commercial banking leadership, as well as enhanced lending teams based in Edison, N.J. and Manhattan, the Bank is preparing for future loan growth.”

Non-Interest Income

Non-interest income was $4.7 million for the quarter ended September 30, 2014, as compared to $4.0 million for the quarter ended June 30, 2014 and $5.8 million for the comparable prior year quarter. The increase from the linked quarter of $718 thousand was primarily attributable to $1.2 million of negative derivative credit valuation adjustments in the prior quarter associated with commercial loan sales. Net mortgage banking income declined by $106 thousand from the second quarter of 2014 to $423 thousand for the third quarter of 2014 as the Company continues the orderly unwind of Sun Home Loans. The decrease in non-interest income from the prior year quarter is due primarily to a decline in net mortgage banking revenue.  Mortgage banking income is anticipated to fall to zero in future periods.  Going forward, a large percentage of non-interest income is expected to be derived from deposit fees and alternative investment fees which totaled $2.9 million in the third quarter of 2014.

Non-Interest Expense

Non-interest expense for the third quarter of 2014 was $24.1 million, a decrease of $9.3 million from the second quarter of 2014 and $8.8 million from the comparable prior year quarter. Salaries and benefits expense declined by $5.0 million from the second quarter due primarily to the severance charges recorded in the prior quarter as well as the overall impact of the previously announced workforce reduction.  The remaining decline in non-interest expense from the linked quarter is primarily due to prior period restructuring costs, loan sale transaction fees and the overall beneficial impact of ongoing expense reduction efforts.

“As we conclude the restructuring and corrective actions by 2015, our quarterly non-interest expense is anticipated to be approximately $20 million,” said O’Brien.  “While we’ve seen the initial results of the restructuring initiatives including bulk loan sales, capital raise, branch count reductions, and the exit of healthcare, asset-based lending, and mortgage banking businesses, our expenses still remain elevated in the short term since we are supporting activities tied to the conclusion of our restructuring efforts, including the pending sale of our Cape May locations, which is anticipated to close in the first quarter of 2015, as well as higher compliance-related costs related to our regulatory agreement.”

Asset Quality

Asset quality metrics remained strong with low levels of problem loans.  The Bank’s non-performing loans held-for-investment  were essentially flat at $14.1 million at September 30, 2014 as compared to the prior quarter and non-performing loans held-for-investment to total loans were stable at 0.8%.

During the third quarter, the Company completed the sale of $15.8 million of problem consumer loans that were placed into held-for-sale at June 30, 2014 as part of the balance sheet restructuring.  During the third quarter of 2014, the Company incurred an additional write down of $707 thousand for the remaining home equity loans in held-for-sale which have a balance of $2.8 million at September 30, 2014.  The Company is actively marketing this small portfolio for sale.

There was no provision expense recorded during the third quarter of 2014 compared to $14.8 million of provision expense in the linked quarter.  Net charge-offs were $1.9 million in the three months ended September 30, 2014 as compared to $20.2 million in the second quarter of 2014 and net recoveries of $123 thousand in the third quarter of 2013. The impact of the net charge-offs was directly offset by a decrease in required reserves as a result of the overall  reduction in loan balances noted above. The allowance for loan losses was $26.5 million, or 1.58% of gross loans held-for-investment, at September 30, 2014, as compared to $28.4 million, or 1.53% of gross loans held-for-investment, at June 30 2014 and $35.5 million, or 1.66% of gross loans held-for-investment, at December 31, 2013. 

Capital

In the third quarter, the Company announced the successful completion of a $20 million capital raise.  At September 30, 2014, the capital ratios of the Company and the Bank continued to exceed the levels mandated by the Federal Reserve and the Office of the Comptroller of the Currency, respectively.  At September 30, 2014, the Bank’s total risk-based capital ratio, Tier 1 capital ratio and leverage capital ratio were approximately 16.2%, 14.9%, and 9.4%, respectively.  At September 30, 2014, the Company’s total risk-based capital ratio, Tier 1 capital ratio and leverage capital ratio were approximately 17.9%, 15.5%, and 9.8%, respectively.  The Company’s tangible equity to tangible assets ratio was 7.5% at September 30, 2014, as compared to 6.6% at June 30, 2014. 

The Company will hold a conference call on Thursday, October 23, 2014 at 11:00 AM (EST) to discuss results and answer questions from analysts and investors.  Participants may listen to or participate in the Company’s earnings conference call via the following:

·   Toll-free participant dial-in: 800-210-9006

·   Conference ID: 2587628

About Sun Bancorp

Sun Bancorp, Inc. (NASDAQ: SNBC) is a $2.82 billion asset bank holding company headquartered in Mount Laurel, New Jersey. Its primary subsidiary is Sun National Bank, a full service commercial bank serving customers throughout 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.

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 the successful implementation of our comprehensive strategic restructuring plan to improve financial performance and capital, reduce costs, risk and operating complexity, and the timing of the completion of the transactions contemplated thereby, addressing the Company's long-standing obstacles to earnings, regulatory compliance and overall performance excellence, building a platform that can support meaningful revenue generation and growth and through which we can begin to deploy our excess cash balances into quality commercial loans, our preparations for future loan growth, our progress in building profitable deposit relationships with our commercial and consumer clients, anticipated reductions in non-interest expenses and the anticipated closing of the sale of certain branches in the first quarter of 2015. These statements may be identified by such words as “should,” “expect,” “believe,” “view,” “opportunity,” “allow,” “continues,” “reflects,” “typically,” “usually,” “anticipate” or similar words or variations of such terms.  Actual results and trends could differ materially from those set forth in such statements and there can be no assurances that our strategic restructuring plan will improve our financial performance, improve our future capital levels, reduce our costs, or reduce our risks or operating complexity; that our strategic restructuring plan will be completed as and in the time frames anticipated; that we will adequately address long standing obstacles to earnings, regulatory compliance and overall performance excellence; that we will build a platform that can support meaningful revenue generation and growth and through which we can deploy our excess cash balances into quality commercial loans; that our preparations for future loan growth will be successful; that we will continue to make progress in building profitable deposit relationships with our commercial and consumer clients; that we will experience anticipated reductions in non-interest expenses; or that the closing of the sale of certain branches in the first quarter of 2015 will be completed successfully. We caution that such statements are subject to a number of uncertainties. Factors that could cause actual results to differ from those expressed or implied by such forward-looking statements include, but are not limited to: (i) competition among providers of financial services; (ii) changes in laws and regulations, including without limitation changes in capital requirements under the federal prompt corrective action regulations; (iii) changes in business strategy or an inability to execute strategy due to the occurrence of unanticipated events; (iv) the failure to complete any or all of the transactions contemplated in the Company's comprehensive strategic restructuring plan on the terms currently contemplated; (v) failure to comply with the Bank’s agreement with the Office of the Comptroller of the Currency (the “OCC”); (vi) the cost of compliance with the agreement; (vii) local, regional and national economic conditions and events and the impact they may have on the Company, the Bank and its customers; (viii) the ability to attract deposits and other sources of liquidity; (ix) changes in the financial performance and/or condition of Bank's borrowers; (x) changes in the level of non-performing and classified assets and charge-offs; (xi) changes in estimates of future loan loss reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements; (xii) inflation, interest rate, securities market and monetary fluctuations; (xiii) changes in consumer spending, borrowing and saving habits; (xiv) the ability to increase market share and control expenses; (xv) volatility in the credit and equity markets and its effect on the general economy; (xvi) the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters; and (xvii) 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, the Company's Form 10-Q for the three months ended June 30, 2014 and March 31, 2014, 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 September 30, 2014, June 30, 2014, March 31, 2014, December 31, 2013 and September 30, 2013 were $166 thousand, $166 thousand, $166 thousand, $167 thousand, and $167 thousand, respectively. The fully taxable equivalent adjustments for the nine months ended September 30, 2014 and 2013 were $498 thousand, and $554 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 September 30, 2014, June 30, 2014, March 31, 2014, December 31, 2013 and September 30, 2013 were $38.2 million, $38.4 million, $38.7 million, $39.0 million and $39.4 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 September 30, 2014,  June 30, 2014, March 31, 2014, December 31, 2013, and September 30, 2013 and nine months ended September 30, 2014 and September 30, 2013.

For Three Months Ended:	September 30, 2014		June 30, 2014		March 31, 2014		December 31, 2013		September 30, 2013
Net interest income	$	18,921	$	20,612	$	21,392	$	21,935	$	22,980
Effect of tax exempt income		166		166		166		167		167
Net interest income, tax equivalent basis	$	19,087	$	20,778	$	21,558	$	22,102	$	23,147

For Nine Months Ended:	September 30,
	2014			2013
Net interest income		$	60,925		$   67,834
Effect of tax exempt income			498	554
Net interest income, tax equivalent basis		$	61,423		$   68,388

Tangible book value per common share

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

	September 30, 2014		June 30, 2014		March 31, 2014		December 31, 2013		September 30, 2013
Tangible book value per common share:
Shareholders’ equity	$	247,047	$	227,656	$	248,898	$	245,337	$	257,140
Less: Intangible assets		38,188		38,426		38,709		38,993		39,448
Tangible equity	$	208,859	$	189,230	$	210,189	$	206,344	$	217,692
Common stock		18,885		17,752		17,742		17,742		17,724
Less: Treasury stock		300		319		389		399		414
Total outstanding shares		18,585		17,433		17,353		17,343		17,310
Tangible book value per common share:	$	11.24	$	10.85	$	12.11	$	11.90	$	12.58

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,
		2014					2013						2014					2013
Profitability for the period:
Net interest income		$		18,921			$			22,980			$		60,925			$	67,834
Provision for loan losses				-						724					14,803				(988		)
Non-interest income				4,695						5,799					13,621				26,939
Non-interest expense				24,132						32,917					85,697				97,492
Loss before income taxes				(516	)					(4,862)					(25,954		)		(1,731)
Income tax expense     Net loss available to common shareholders		$		309 (825	)		$			- (4,862)			$		1,025 (26,979		)	$	- (1,731)
Financial ratios:
Return on average assets(1)				(0.11)	%					(0.60)	%				(1.68)		%		(0.07)		%
Return on average equity(1)				(1.4)	%					(7.5)	%				(19.8)		%		(0.9)		%
Return on average tangible equity(1),(2)				(1.6)	%					(8.8)	%				(23.3)		%		(1.0)		%
Net interest margin(1)				2.87	%					3.10	%				2.95		%		3.07		%
Efficiency ratio				95	%					114	%				116		%		103		%
Loss per common share:
Basic(3)		$		(0.05	)		$			(0.28)			$		(1.54		)	$	(0.10)
Diluted(3)		$		(0.05	)		$			(0.28)			$		(1.54		)	$	(0.10)
Average equity to average assets				8.41	%					7.99	%				8.47		%		8.12		%
			September 30,										December 31,
			2014			2013							2013
At period-end:
Total assets			$	2,819,893				$	3,236,321				$			3,087,553
Total deposits				2,170,627					2,752,693							2,621,571
Loans receivable, net of allowance for loan losses				1,649,869					2,120,686							2,102,167
Loans held-for-sale, at fair value				4,595					-							20,662
Loans held-for-sale, at lower of cost or market				2,770					18,707							-
Investments				425,079					425,029							457,797
Branch deposits held-for-sale				192,068					-							-
Borrowings				68,904					68,953							68,765
Junior subordinated debentures				92,786					92,786							92,786
Shareholders’ equity				247,047					257,140							245,337
Credit quality and capital ratios:
Allowance for loan losses to gross loans held-for-investment				1.58		%			2.25			%				1.66				%
Non-performing loans held-for-investment to gross loans     held-for-investment				0.84		%			2.55			%				1.78				%
Non-performing assets to gross loans held-for-investment, loans held-for-sale and real estate owned				1.09		%			2.76			%				1.87				%
Allowance for loan losses to non-performing loans held-for-investment				187		%			88			%				94				%
Total capital (to risk-weighted assets) (4):
Sun Bancorp, Inc.				17.9		%			14.7			%				14.4				%
Sun National Bank				16.2		%			14.0			%				13.7				%
Tier 1 capital (to risk-weighted assets) (4):
Sun Bancorp, Inc.				15.6		%			12.8			%				12.3				%
Sun National Bank				14.9		%			12.7			%				12.4				%
Leverage ratio:
Sun Bancorp, Inc.				9.8		%			9.1			%				9.0				%
Sun National Bank				9.4		%			9.1			%				9.0				%
Book value per common share			$	13.29				$	14.85					$		14.15
Tangible book value per common share			$	11.24				$	12.58					$		11.90
(1) Amounts for the three and nine months ended are annualized.
(2) Prior periods were retroactively adjusted for the impact of the 1-for-5 reverse stock split completed on August 11, 2014.
(3) 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. (4) September 30, 2014 capital ratios are estimated, subject to regulatory filings.

SUN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
(Dollars in thousands, except par value amounts)
	September 30, 2014			December 31, 2013
ASSETS
Cash and due from banks	$	37,032		$	38,075
Interest-earning bank balances		467,321			229,687
Cash and cash equivalents		504,353			267,762
Restricted cash		13,000			26,000
Investment securities available for sale (amortized cost of $410,354 and $452,023 at September 30, 2014 and December 31, 2013, respectively)		409,496			440,097
Investment securities held to maturity (estimated fair value of $645 and $692 at September 30, 2014 and December 31, 2013, respectively)		604			681
Loans receivable (net of allowance for loan losses of $26,540 and $35,537 at September 30, 2014 and December 31, 2013, respectively)		1,649,869			2,102,167
Loans held-for-sale, at fair value		4,595			20,662
Loans held-for-sale, at lower of cost or market		2,770			-
Branch assets held-for-sale		31,408			-
Restricted equity investments, at cost		14,979			17,019
Bank properties and equipment, net		41,610			49,095
Real estate owned		1,084			2,503
Accrued interest receivable		5,652			7,112
Goodwill		38,188			38,188
Intangible assets, net		-			805
Deferred taxes, net		-			4,575
Bank owned life insurance (BOLI)		78,650			77,236
Other assets		23,635			33,651
Total assets	$	2,819,893		$	3,087,553
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits	$	2,170,627		$	2,621,571
Branch deposits held-for-sale		192,068			-
Securities sold under agreements to repurchase – customers		963			478
Advances from the Federal Home Loan Bank of New York (FHLBNY)		60,830			60,956
Obligations under capital lease		7,111			7,331
Junior subordinated debentures		92,786			92,786
Deferred taxes, net		662			-
Other liabilities		47,799			59,094
Total liabilities		2,572,846			2,842,216
Shareholders’ equity:
Preferred stock, $1 par value, 1,000,000 shares authorized; none issued		-			-
Common stock, $5 par value, 40,000,000 shares authorized; 18,884,782 shares issued and 18,585,036 shares outstanding at September 30, 2014; 17,742,207 shares issued and 17,342,883 shares outstanding at December 31, 2013(1)		94,415			88,711
Additional paid-in capital		515,390			506,719
Retained deficit		(344,933	)		(317,954	)
Accumulated other comprehensive loss		(508	)		(7,055	)
Deferred compensation plan trust		(599	)		(522	)
Treasury stock at cost, 299,746 shares at September 30, 2014; and 399,324 shares at December 31, 2013		(16,718	)		(24,562	)
Total shareholders’ equity		247,047			245,337
Total liabilities and shareholders’ equity	$	2,819,893		$	3,087,553

(1) Prior period share data was retroactively adjusted for the impact of the 1-for-5 reverse stock split completed on August 11, 2014

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,
		2014			2013		2014			2013
INTEREST INCOME
Interest and fees on loans	$	19,307		$	24,576	$	62,223		$	73,420
Interest on taxable investment securities		2,140			1,680		6,583			4,449
Interest on non-taxable investment securities		306			310		923			1,028
Dividends on restricted equity investments		202			222		643			685
Total interest income		21,955			26,788		70,372			79,582
INTEREST EXPENSE
Interest on deposits		2,057			2,813		6,526			8,773
Interest on funds borrowed		435			445		1,314			1,332
Interest on junior subordinated debentures		542			550		1,607			1,643
Total interest expense		3,034			3,808		9,447			11,748
Net interest income		18,921			22,980		60,925			67,834
PROVISION FOR LOAN LOSSES		-			724		14,803			(988)
Net Interest income after provision for loan losses		18,921			22,256		46,122			68,822
NON-INTEREST INCOME
Service charges on deposit accounts		2,285			2,314		6,651			6,793
Mortgage banking revenue, net		423			1,593		1,190			10,598
Gain on sale of investment securities		-			2		50			3,489
Investment products income		635			678		1,967			2,085
BOLI income		484			482		1,414			1,416
Derivative credit valuation adjustment		11			(380)		(1,189	)		(878	)
Other		857			1,110		3,538			3,436
Total non-interest income		4,695			5,799		13,621			26,939
NON-INTEREST EXPENSE
Salaries and employee benefits		11,265			12,656		40,141			39,967
Commission expense		553			2,001		2,261			6,598
Occupancy expense		2,980			3,456		10,798			10,113
Equipment expense		1,695			1,796		5,800			5,485
Amortization of intangible assets		238			540		805			2,002
Data processing expense		1,299			995		3,777			3,021
Professional fees		1,423			5,947		5,262			13,355
Insurance expenses		1,443			1,496		4,268			4,468
Advertising expense		567			676		1,676			1,927
Problem loan expense		294			816		1,492			2,638
Real estate owned expense, net		71			252		917			1,741
Office supplies expense		217			192		753			612
Other		2,087			2,094		7,747			5,565
Total non-interest expense		24,132			32,917		85,697			97,492
LOSS BEFORE INCOME TAXES		(516	)		(4,862)		(25,954	)		(1,731)
INCOME TAX EXPENSE		309			-		1,025			-
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS	$	(825	)	$	(4,862)	$	(26,979	)	$	(1,731)
Basic loss per share(1)	$	(0.05	)	$	(0.28)	$	(1.54	)	$	(0.10)
Diluted loss per share(1)	$	(0.05	)	$	(0.28)	$	(1.54	)	$	(0.10)
Weighted average shares – basic(1)	17,949,643			17,299,917		17,574,246			17,271,373
Weighted average shares – diluted(1)	17,949,643			17,299,917		17,574,246			17,271,373

(1) Prior periods were retroactively adjusted for the impact of the 1-for-5 reverse stock split completed on August 11, 2014.

SUN BANCORP, INC. AND SUBSIDIARIES
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in thousands)
	2014			2014			2014			2013				2013
	Q3			Q2			Q1			Q4				Q3
Balance sheet at quarter end:
Cash and cash equivalents	$	504,353		$	330,440			$	282,095		$	267,762			$	427,583
Restricted cash		13,000			26,000				26,000			26,000				26,000
Investment securities		425,079			454,051				456,724			457,797				425,029
Loans held-for-investment:
Commercial		1,196,767			1,363,900				1,519,993			1,587,566				1,636,856
Home equity		151,369			165,671				184,936			188,478				192,135
Second mortgage		21,858			21,282				23,312			25,279				26,028
Residential real estate		299,838			298,063				326,945			305,552				281,537
Other		6,577			7,200				28,894			30,829				32,984
Total gross loans held-for-investment		1,676,409			1,856,116				2,084,080			2,137,704				2,169,540
Allowance for loan losses		(26,540	)		(28,392	)			(33,768	)		(35,537	)			(48,854	)
Net loans held-for-investment		1,649,869			1,827,724				2,050,312			2,102,167				2,120,686
Loans held-for-sale		7,365			29,171				16,048			20,662				18,707
Branch assets held-for-sale		31,408			34,058				-			-				-
Goodwill		38,188			38,188				38,188			38,188				38,188
Intangible assets, net		-			238				521			805				1,260
Total assets		2,819,893			2,894,658				3,038,467			3,087,553				3,236,321
Total deposits		2,170,627			2,272,765				2,573,445			2,621,571				2,752,693
Branch deposits held-for-sale		192,068			160,769				-			-				-
Securities sold under agreements to repurchase - customers		963			670				471			478				554
Advances from FHLBNY		60,830			60,873				60,915			60,956				60,997
Obligations under capital lease		7,111			7,191				7,259			7,331				7,402
Junior subordinated debentures		92,786			92,786				92,786			92,786				92,786
Total shareholders' equity		247,047			227,656				248,898			245,337				257,140
Quarterly average balance sheet:
Loans(1):
Commercial	$	1,292,705		$	1,480,491			$	1,560,442		$	1,621,222			$	1,671,302
Home equity		179,226			185,710				187,052			190,394				194,622
Second mortgage		22,528			24,358				24,863			26,142				27,041
Residential real estate		322,751			338,028				331,433			312,977				299,667
Other		3,755			23,196				25,014			26,134				27,723
Total gross loans		1,820,965			2,051,783				2,128,804			2,176,869				2,220,355
Securities and other interest-earning assets		840,541			694,529				677,850			782,200				763,575
Total interest-earning assets		2,661,506			2,746,312				2,806,654			2,959,069				2,983,930
Total assets		2,888,920			2,982,427				3,049,321			3,205,900				3,264,884
Non-interest-bearing demand deposits		612,775			573,290				559,606			585,530				549,684
Total deposits		2,429,606			2,519,901				2,584,588			2,718,905				2,746,820
Total interest-bearing liabilities		1,978,480			2,108,103				2,186,394			2,295,072				2,358,923
Total shareholders' equity		243,020			254,116				250,946			256,783				260,701
Capital and credit quality measures:
Total capital (to risk-weighted assets)(2):
Sun Bancorp, Inc.		17.9	%		15.0	%			14.9	%		14.41	%			14.72	%
Sun National Bank		16.2	%		14.5	%			14.1	%		13.65	%			13.96	%
Tier 1 capital (to risk-weighted assets)(2):
Sun Bancorp, Inc.		15.6	%		12.4	%			12.8	%		12.34	%			12.76	%
Sun National Bank		14.9	%		13.2	%			12.8	%		12.40	%			12.70	%
Leverage ratio:
Sun Bancorp, Inc.		9.8	%		8.6	%			9.4	%		8.99	%			9.13	%
Sun National Bank		9.4	%		9.1	%			9.5	%		9.02	%			9.09	%
Average equity to average assets		8.4	%		8.5	%			8.2	%		8.01	%			7.99	%
Allowance for loan losses to total gross loans held-for-investment		1.58	%		1.5	%			1.62	%		1.66	%			2.25	%
Non-performing loans held-for-investment to gross loans held-for-investment		0.84	%		0.76	%			1.80	%		1.78	%			2.55	%
Non-performing assets to gross loans held-for-investment, loans held-for-sale and real estate owned		1.07	%		1.02	%			1.91	%		1.87	%			2.76	%
Allowance for loan losses to non-performing loans held-for-investment		188	%		202	%			90	%		94	%			88	%
Other data:
Net (charge-offs) recoveries		(1,852	)		(20,179	)			(1,768	)		(15,452	)			123
Non-performing assets:
Non-accrual loans	$	13,561		$	13,470			$	29,387		$	29,811			$	44,976
Non-accrual loans held-for-sale		2,770			4,086				-			-				-
Troubled debt restructurings, non-accrual		528			583				8,017			8,166				10,419
Loans past due 90 days and accruing		-			-				42			-				-
Real estate owned, net		1,084			1,327				2,728			2,503				5,059
Total non-performing assets	$	17,943		$	19,466				40,174			40,480			$	60,454
(1)Average balances include non-accrual loans and loans held-for-sale. (2)September 30, 2014 capital ratios are estimated, subject to regulatory filings.

SUN BANCORP, INC. AND SUBSIDIARIES
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in thousands, except share and per share amounts)
	2014					2014							2014						2013					2013
	Q3					Q2							Q1						Q4					Q3
Profitability for the quarter:
Tax-equivalent interest income	$			22,121		$		23,943					$	24,806					$	25,667				$	26,955
Interest expense				3,034				3,165						3,248						3,565					3,808
Tax-equivalent net interest income				19,087				20,778						21,558						22,102					23,147
Tax-equivalent adjustment				166				166						166						167					167
Provision for loan losses				-				14,803						-						2,135					(724			)
Non-interest income				4,695				3,977						4,949						4,742					5,799
Non-interest expense excluding amortization of intangible assets				23,894				33,394						27,604						32,002					32,377
Amortization of intangible assets				238				283						284						455					540
Loss before income taxes				(516	)			(23,891			)			(1,547				)		(7,915			)		(4,862			)
Income tax expense				309				357						359						297					-
Net loss available to common shareholders	$			(825	)	$		(24,248			)		$	(1,906				)	$	(8,212			)	$	(4,862			)
Financial ratios:
Return on average assets(1)				(0.11)	%			(3.25)			%			(0.25)				%		(1.02)			%		(0.60)			%
Return on average equity(1)				(1.4)	%			(38.2)			%			(3.0)				%		(12.8)			%		(7.5)			%
Return on average tangible equity(1),(2)				(1.6)	%			(45.0)			%			(3.6)				%		(15.1)			%		(8.8)			%
Net interest margin(1)				2.87	%			3.03			%			3.07				%		2.99			%		3.10			%
Efficiency ratio				95	%			137			%			106				%		122			%		114			%
Per share data:
Loss per common share:
Basic(3)	$			(0.05	)	$		(1.39			)		$	(0.11				)	$	(0.47			)	$	(0.28)
Diluted(3)	$			(0.05	)	$		(1.39			)		$	(0.11				)	$	(0.47			)	$	(0.28)
Book value(3)	$			13.29		$		13.06					$	14.34					$	14.15				$	14.86
Tangible book value(3)	$			11.24		$		10.85					$	12.11					$	11.90				$	12.58
Average basic shares(3)	17,949,643					17,417,829							17,348,169						17,316,673					17,299,917
Average diluted shares(3)	17,949,643					17,417,829							17,348,169						17,316,673					17,299,917
Non-interest income:
Service charges on deposit accounts	$			2,285		$		2,215					$	2,151					$	2,263				$	2,314
Mortgage banking revenue, net				423				529						635						1,000					1,593
Net gain on sale of investment securities				-				50						-						-					2
Investment products income				635				715						617						599					678
BOLI income				484				469						461						466					482
Derivative credit valuation adjustment				11				(1,162			)			(38				)		(710			)		(380			)
Other income				857				1,161						1,123						1,124					1,110
Total non-interest income	$			4,695		$		3,977					$	4,949					$	4,742				$	5,799
Non-interest expense:
Salaries and employee benefits	$			11,265		$		15,992					$	12,884					$	13,070				$	12,656
Commission expense				553				811						897						1,098					2,001
Occupancy expense				2,980				3,552						4,266						3,406					3,456
Equipment expense				1,695				2,356						1,749						1,871					1,796
Amortization of intangible assets				238				283						284						455					540
Data processing expense				1,299				1,281						1,197						1,223					995
Professional fees				1,423				2,353						1,486						4,891					5,947
Insurance expense				1,443				1,358						1,467						1,498					1,496
Advertising expense				567				523						586						903					676
Problem loan costs				294				566						632						769					816
Real estate owned expense, net				71				702						144						529					252
Office supplies expense				217				285						251						245					192
Other expense				2,087				3,615						2,045						2,499					2,094
Total non-interest expense	$			24,132		$		33,677					$	27,888					$	32,457				$	32,917
(1) Amounts are annualized. (2) Return on average tangible equity is computed by dividing annualized net income for the period by average tangible equity. Average tangible equity equals average equity less average identifiable intangible assets and goodwill.
(3) Prior periods were retroactively adjusted for the impact of the 1-for-5 reverse stock split completed on August 11, 2014.
SUN BANCORP, INC. AND SUBSIDIARIES
AVERAGE BALANCE SHEETS (Unaudited)
(Dollars in thousands)
		For the Three Months Ended September 30,
		2014														2013
		Average					Income/			Yield/						Average					Income/					Yield/
		Balance					Expense			Cost						Balance					Expense					Cost
Interest-earning assets:
Loans receivable (1),(2):
Commercial		$	1,292,705				$		14,438			4,47			%	$	1,671,302					19,205					4.60		%
Home equity			179,226						1,749			3.90					194,622					1,892					3.89
Second mortgage			22,528						313			5.56					27,041					384					5.68
Residential real estate			322,751						2,737			3.39					299,667					2,620					3.50
Other			3,755						70			7.46					27,723					476					6.87
Total loans receivable			1,820,965						19,307			4.24					2,220,355					24,577					4.43
Investment securities(3)			434,721						2,562			2.36					414,189					2,203					2.13
Interest-earning bank balances			405,820						252			0.25					349,386					222					0.25
Total interest-earning assets			2,661,506						22,121			3.32					2,983,930					27,002					3.62
Non-interest earning assets:
Cash and due from banks			44,380														46,336
Restricted cash			13,000														26,000
Bank properties and equipment, net			46,162														48,590
Goodwill and intangible assets, net			38,281														39,717
Other assets			85,591														120,311
Total non-interest-earning assets			227,414														280,954
Total assets		$	2,888,920													$	3,264,884
Interest-bearing liabilities:
Interest-bearing deposit accounts:
Interest-bearing demand deposits		$	1,010,830				$		707			0.28			%	$	1,263,160					1,064					0.34		%
Savings deposits			256,909						164			0.26					270,394					213					0.32
Time deposits			549,092						1,186			0.86					663,582					1,536					0.93
Total interest-bearing deposit accounts			1,816,831						2,057			0.45					2,197,136					2,813					0.51
Short-term borrowings:
Securities sold under agreements to repurchase - customers			875						-			-					555					-					-
Long-term borrowings:
FHLBNY advances (4)			60,845						318			2.09					61,011					321					2.10
Obligations under capital lease			7,143						117			6.55					7,435					124					6.67
Junior subordinated debentures			92,786						542			2.34					92,786					550					2.37
Total borrowings			161,649						977			2.42					161,787					995					2.46
Total interest-bearing liabilities			1,978,480						3,034			0.61					2,358,923					3,808					0.65
Non-interest bearing liabilities:
Non-interest-bearing demand deposits			612,775														549,684
Other liabilities			54,645														95,576
Total non-interest bearing liabilities			667,420														645,260
Total liabilities			2,645,900														3,004,183
Shareholders' equity			243,020														260,701
Total liabilities and shareholders' equity		$	2,888,920													$	3,264,884
Net interest income							$		19,087												$	23,194
Interest rate spread (5)												2.71			%												2.97		%
Net interest margin (6)												2.87			%												3.11		%
Ratio of average interest-earning assets to average interest-bearing liabilities												135			%												127		%
(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, 2014 and 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.

SUN BANCORP, INC. AND SUBSIDIARIES
AVERAGE BALANCE SHEETS (Unaudited)
(Dollars in thousands)
	For the Nine Months Ended September 30,
	2014							2013
	Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Cost			Balance		Expense		Cost
Interest-earning assets:
Loans receivable (1),(2):
Commercial	$	1,443,565	$	46,173		4.25	%	$	1,711,443		56,786		4.41	%
Home equity		183,967		5,288		3.82			198,688		5,709		3.82
Second mortgage		23,907		996		5.54			28,677		1,244		5.77
Residential real estate		330,706		8,881		3.57			312,496		8,176		3.48
Other		17,244		884		6.82			29,010		1,504		6.90
Total loans receivable		1,999,389		62,222		4.14			2,280,314		73,419		4.28
Investment securities(3)		447,894		8,103		2.41			405,124		6,192		2.03
Interest-earning bank balances		290,342		544		0.25			279,288		525		0.25
Total interest-earning assets		2,737,625		70,869		3.44			2,964,726		80,136		3.59
Non-interest earning assets:
Cash and due from banks		42,317							72,025
Restricted cash		21,619							-
Bank properties and equipment, net		47,442							49,375
Goodwill and intangible assets, net		38,565							40,314
Other assets		85,400							104,933
Total non-interest-earning assets		235,343							266,647
Total assets	$	2,972,968						$	3,231,373
Interest-bearing liabilities:
Interest-bearing deposit accounts:
Interest-bearing demand deposits	$	1,086,050	$	2,304		0.28	%	$	1,249,777		3,269		0.35	%
Savings deposits		262,829		521		0.26			268,488		648		0.32
Time deposits		579,833		3,701		0.85			676,742		4,856		0.95
Total interest-bearing deposit accounts		1,928,712		6,526		0.45			2,195,007		8,773		0.53
Short-term borrowings:
Securities sold under agreements to repurchase - customers		627		-		-			1,920		2		0.14
Long-term borrowings:
FHLBNY advances (4)		60,887		946		2.07			61,073		955		2.08
Obligations under capital lease		7,219		367		6.76			7,503		375		6.65
Junior subordinated debentures		92,786		1,607		2.30			92,786		1,643		2.36
Total borrowings		161,519		2,920		2.40			163,282		2,975		2.42
Total interest-bearing liabilities		2,090,231		9,446		0.60			2,358,289		11,748		0.66
Non-interest bearing liabilities:
Non-interest-bearing demand deposits		582,085							529,322
Other liabilities		51,321							81,477
Total non-interest bearing liabilities		633,406							610,799
Total liabilities		2,723,637							2,969,088
Shareholders' equity		249,331							262,285
Total liabilities and shareholders' equity	$	2,972,968						$	3,231,372
Net interest income			$	61,423						$	68,388
Interest rate spread (5)						2.84	%						2.93	%
Net interest margin (6)						2.98	%						3.07	%
Ratio of average interest-earning assets to average interest-bearing liabilities						131	%						125	%
(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, 2014 and 2013 were $498 thousand and $554 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.

SUN BANCORP, INC. AND SUBSIDIARIES
AVERAGE BALANCE SHEETS (Unaudited)
(Dollars in thousands)
	For the Three Months Ended
	September 30, 2014							June 30, 2014
	Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Cost			Balance		Expense		Cost
Interest-earning assets:
Loans receivable (1),(2):
Commercial	$	1,292,705	$	14,438		4,47	%	$	1,480,491	$	15,385		4.16	%
Home equity		179,226		1,749		3.90			185,710		1,777		3.83
Second mortgage		22,528		313		5.56			24,358		326		5.35
Residential real estate		322,751		2,737		3.39			338,028		3,187		3.77
Other		3,755		70		7.46			23,196		391		6.74
Total loans receivable		1,820,965		19,307		4.24			2,051,783		21,066		4.11
Investment securities (3)		434,721		2,562		2.36			451,477		2,723		2.41
Interest-earning bank balances		405,820		252		0.25			243,052		154		0.25
Total interest-earning assets		2,661,506		22,121		3.32			2,746,312		23,943		3.49
Non-interest earning assets:
Cash and due from banks		44,380							41,196
Restricted cash		13,000							26,000
Bank properties and equipment, net		46,162							47,586
Goodwill and intangible assets, net		38,281							38,568
Other assets		85,591							82,765
Total non-interest-earning assets		227,414							236,115
Total assets	$	2,888,920						$	2,982,427
Interest-bearing liabilities:
Interest-bearing deposit accounts:
Interest-bearing demand deposits	$	1,010,830	$	707		0.28	%	$	1,099,385	$	790		0.29	%
Savings deposits		256,909		164		0.26			264,386		177		0.27
Time deposits		549,092		1,186		0.86			582,840		1,223		0.84
Total interest-bearing deposit accounts		1,816,831		2,057		0.45			1,946,611		2,190		0.45
Short-term borrowings:
Securities sold under agreements to repurchase - customers		875		-		-			598		-		-
Long-term borrowings:
FHLBNY advances (4)		60,845		318		2.09			60,887		315		2.07
Obligations under capital lease		7,143		117		6.55			7,221		127		7.04
Junior subordinated debentures		92,786		542		2.34			92,786		533		2.30
Total borrowings		161,649		977		2.42			161,492		975		2.41
Total interest-bearing liabilities		1,978,480		3,034		0.61			2,108,103		3,165		0.60
Non-interest bearing liabilities:
Non-interest-bearing demand deposits		612,775							573,290
Other liabilities		54,645							46,918
Total non-interest bearing liabilities		667,420							620,208
Total liabilities		2,645,900							2,728,311
Shareholders' equity		243,020							254,116
Total liabilities and shareholders' equity	$	2,888,920						$	2,982,427
Net interest income			$	19,087						$	20,778
Interest rate spread (5)						2.71	%						2. 89	%
Net interest margin (6)						2.87	%						3.03	%
Ratio of average interest-earning assets to average interest-bearing liabilities						135	%						130	%
(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 adjustment for both the three months ended September 30, 2014 and June 30, 2014 was $166 thousand.
(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.