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

News Release

For Immediate Release

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

Sun Bancorp, Inc. Reports First Quarter 2011 Results

VINELAND, NJ – April 26, 2011 – Sun Bancorp, Inc. (NASDAQ: SNBC) reported today a net loss available to common shareholders of $67.1 million, or a loss of $1.25 per diluted share, for the quarter ended March 31, 2011, compared to a net loss available to common shareholders of $762,000, or a loss of $0.03 per diluted share, for the quarter ended March 31, 2010.

As part of a continuing strategy to strengthen its balance sheet, the Company signed a definitive agreement to sell $174.3 million of loans, having a book balance of $159.8 million, to a third-party investor for gross proceeds of $99.2 million. The transaction, which is expected to close in the second quarter of 2011, represents a sale price of approximately 57 cents on the dollar and resulted in a net loss of $44.3 million after accounting for loan loss reserves, customer derivative termination costs and other expenses. Accordingly, these loans were transferred to held-for-sale as of March 31, 2011 at fair value. In addition, the Company transferred an additional $20.1 million of loans to held-for-sale at March 31, 2011, at a fair value of $11.3 million, resulting in a loss of $8.8 million. In total, $179.9 million of loans were transferred to held-for sale at a net loss of $53.1 million in the first quarter.

Excluding the loan sale items, the Company incurred a net loss of $14.0 million, or $0.26 per diluted share. The loss was primarily driven by $10.2 million of additional loan loss reserves related to two commercial relationships and $4.3 million in fair value credit adjustments on one customer derivative account.

In addition, as previously announced, the Company successfully closed on a public offering of 28,750,000 shares of its common stock at an offering price of $3.00 per share, which included the full exercise of the over-allotment option granted to the underwriters to purchase an additional 3,750,000 shares of common stock. After deducting the underwriting discount and estimated offering expenses payable by the Company, the net proceeds received during the first quarter were $81.4 million. During the second quarter of 2011, the Company closed on an additional $10.8 million in stock proceeds and expects to close on an additional $3.8 million in stock proceeds pursuant to the exercise of gross-up provisions contained in security purchase agreements with four major investors. Upon completion of the final gross-up, the total net proceeds from the stock offering are expected to be $96.0 million.

Other items of note in the results for the first quarter of 2011 were as follows:

● Loan loss provision of $60.3 million as compared to $9.6 million for the comparable prior year period, inclusive of $48.2 million of the loss recorded on the aforementioned transfer of loans to held-for-sale.

● A $1.0 million loss on the sale of one private label mortgage-backed security.

● Other-than-temporary impairment (“OTTI”) charge of $250,000 related to one single-issuer trust preferred security.

“The actions taken in the first quarter of 2011 advance the strategy that we set in motion in 2010 to strengthen Sun and grow the franchise”, remarked Thomas X. Geisel, Sun’s President and Chief Executive Officer. “This quarter’s successful capital raise demonstrates investors’ continued confidence in the Company to profitably grow in our marketplace. The loan sale, our second in as many quarters, affirms management’s commitment to accelerate problem credit resolution and strengthen the balance sheet. We believe this quarter’s actions firmly position Sun for future growth”.

1

Discussion of Results:

Balance Sheet

● Total assets were $3.33 billion at March 31, 2011, as compared to $3.42 billion at December 31, 2010 and $3.53 billion at March 31, 2010.

● Gross loans held-for-investment were $2.27 billion at March 31, 2011, as compared to $2.52 billion at December 31, 2010 and $2.69 billion at March 31, 2010. Compared to the linked quarter, commercial loans decreased by $240.6 million, or 11.4%, primarily driven by the movement of $177.0 million of commercial loans to held-for-sale. The remaining decrease in commercial loans was due to continued charge-off activity and pay downs on commercial real estate loans. In addition, home equity loans decreased by $7.4 million from December 31, 2010 as portfolio pay downs exceeded new originations.

● Total deposits at March 31, 2011 equaled $2.85 billion, as compared to $2.94 billion at December 31, 2010 and $2.92 billion at March 31, 2010. The decrease of $93.0 million, or 3.2%, over the linked quarter is primarily due to a decrease of $79.4 million in certificates of deposit, $38.4 million of which was brokered and jumbo CDs and the remaining $41.0 million due to runoff in CDs less than $100,000. In addition, non-interest checking balances declined by $12.5 million primarily as a result of declines in small business and commercial checking balances.

Net Interest Income and Margin

● On a tax equivalent basis, net interest income decreased $2.1 million over the linked quarter to $25.5 million primarily due to a decrease of 20 basis points in the yield on interest-earning assets from 4.35% to 4.15%. The cost of interest-bearing liabilities decreased 13 basis points over the linked quarter from 1.22% to 1.09%. The net interest margin was 3.26% for the first quarter as compared to 3.37% for the linked quarter and 3.56% for the comparable prior year quarter.

● Non-accrual interest reversals of $867,000 were recorded in the March 31, 2011 quarter as compared to $736,000 in the linked quarter.  The Company’s net interest margin, as adjusted for non-accrual interest reversals, was 3.37% for the first quarter of 2011 as compared to an adjusted 3.46% for the linked quarter.

Non-Interest Income

● Non-interest income for the quarter ended March 31, 2011 amounted to a loss of $4.1 million, a decrease of $11.9 million over the linked quarter and $9.8 million over the comparable prior year quarter. The decrease over the linked quarter was primarily attributable to $8.4 million of fair value credit adjustments taken on the Company’s derivative portfolio and a loss of $1.0 million on the sale of a private-label mortgage-backed security. The increase in fair value credit adjustments was largely due to the recognition of losses to be incurred through the unwinding of swap agreements that are related to loans included in the aforementioned loan sale. In addition, the Company recognized a pre-tax OTTI charge during the first quarter of $250,000 related to a single issuer trust preferred security due to continued extension of the interest deferral period by the issuer as well as the underlying fundamentals of the issuer. The Company had recognized a pre-tax OTTI charge of $950,000 on the same security during the prior year.

● Excluding the fair value credit adjustments, the gain/loss on the sale of the securities and OTTI charges, non-interest income was $5.6 million in the current quarter as compared to $6.3 million in the linked quarter.  The decrease of $720 thousand is due primarily to a reduction of $399 thousand in the gain on sale of mortgage loans resulting from decreased volume.

Non-Interest Expense

● The Company incurred $27.8 million of non-interest expense in the first quarter of 2011, a decrease of $167,000 over the linked quarter and an increase of $1.7 million over the comparable prior year quarter. First quarter results included problem loan costs of $3.1 million of which $1.1 million related to delinquent real estate taxes associated with those loans transferred to held-for-sale. Excluding problem loan costs, non-interest expense totaled $24.7 million during the current quarter as compared to $26.0 million for the linked quarter. This decrease of $1.3 million was due primarily to a reduction of $919,000 in the Company’s unfunded loan reserves in the current quarter.

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Asset Quality

● Provision for loan losses for the first quarter was $60.3 million, an increase of $24.8 million, or 69.8%, over the linked quarter, and an increase of $50.7 million over the comparable prior year quarter, and included $48.2 million related to the transfer of loans to held-for-sale. The allowance for loan losses was $58.5 million at March 31, 2011, or 2.58% of gross loans held-for-investment, as compared to the allowance for loan losses to gross loans held-for-investment of 3.24% at December 31, 2010 and 2.35% at March 31, 2010.  Net charge-offs during the first quarter were $83.5 million, or 3.35% of average loans, as compared to $28.4 million, or 1.08% of average loans for the linked quarter and $6.3 million, or 0.23% of average loans outstanding for the comparable prior year quarter. Net charge-offs for the quarter included $69.4 million related to the fair value adjustment on the loans transferred to held-for-sale

● Total non-performing assets were $192.3 million, or 8.05% of total gross loans held-for-investment, loans held-for-sale and real estate owned at March 31, 2011, as compared to $177.7 million, or 7.00% and $89.8 million, or 3.32%, respectively, at December 31, 2010 and March 31, 2010. Non-performing assets at March 31, 2011 included $71.8 million of loans held-for-sale. Non-performing loans increased $14.0 million over the linked quarter to $187.8 million at March 31, 2011 from $173.8 million at December 31, 2010. This increase was primarily due to the addition of approximately $60 million in commercial relationships into non-accrual status, offset by approximately $45 million in charge-offs related to the transfer of loans to held-for-sale.

Capital

● Stockholders’ equity totaled $286.7 million at March 31, 2011 compared to $268.2 million at December 31, 2010.  During the first quarter, the Company closed on its public offering of 28,750,000 shares of common stock at a public offering price of $3.00 per share. The Company had approximately 79.2 million shares issued and outstanding at March 31, 2011. The Company’s tangible equity to tangible assets ratio was 7.27% at March 31, 2011, as compared to 6.51% at December 31, 2010 and 6.34% at March 31, 2010.  At March 31, 2011, the Company’s total risk-based capital ratio, Tier 1 capital ratio and leverage capital ratio were approximately 13.73%, 12.11%, and 9.62%, respectively.  At March 31, 2011, Sun National Bank’s total risk-based capital ratio, Tier 1 capital ratio and leverage capital ratio were approximately 12.65%, 11.38%, and 9.05%, respectively. These ratios do not include the impact of the additional stock proceeds to be generated in the second quarter of 2011 pursuant to the exercise of the gross-up provisions contained in the security purchase agreements with four major investors.

The Company will hold its regularly scheduled conference call on Wednesday, April 27, 2011, at 11:00 a.m. (ET).  Participants may listen to the live web cast through the Sun Bancorp, Inc. web site at www.sunnb.com.  Participants are advised to log on 10 minutes ahead of the scheduled start of the call.  An Internet-based replay will be available at the Web site for two weeks following the call.

Sun Bancorp, Inc. (Nasdaq: SNBC) is a $3.33 billion asset bank holding company headquartered in Vineland, New Jersey, with its executive offices located in Mt. Laurel, New Jersey. Its primary subsidiary is Sun National Bank, a full service Commercial Bank serving customers through 65 locations in New Jersey. Sun National Bank has been named one of Forbes Magazine's "Most Trustworthy Companies" for five years running.  The Bank is an Equal Housing Lender and its deposits are insured up to the legal maximum by the Federal Deposit Insurance Corporation (FDIC). For more information about Sun National Bank and Sun Bancorp, Inc., visit www.sunnb.com.  

The foregoing material contains forward-looking statements concerning the financial condition, results of operations and business of the Company.  We caution that such statements are subject to a number of uncertainties and actual results could differ materially, and, therefore, readers should not place undue reliance on any forward-looking statements.  The Company does not undertake, and specifically disclaims, any obligation to publicly release the results of any revisions that may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

Non-GAAP Financial Measures

This release references adjusted net interest margin. Adjusted net interest margin is derived from GAAP net interest income adjusted by adding back interest income that would have been earned had the loans been on accrual status.  We believe the presentation of adjusted net interest margin provides additional transparency of underlying trends.  Adjusted net interest margin for the quarters ending March 31, 2011 and December 31, 2010 is calculated by adding $867,000 and $736,000, respectively, of non-accrual interest reversals, annualized, to net interest income of $25.5 million and $27.7 million, respectively, and dividing the balance by average interest-earning assets of $3.13 billion and $3.28 billion, respectively.  Tax-equivalent interest income is also 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, 2011 and 2010 were $409,000 and $540,000, respectively. The fully taxable equivalent adjustment for the three months ended December 31, 2010 was $382,000.

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SUN BANCORP, INC. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS (Unaudited)
(Dollars in thousands, except per share amounts)
		For the Three Months Ended
		March 31,									December 31,
		2011				2010					2010
Profitability for the period:
Net interest income		$	25,126			$		27,623			$	27,273
Provision for loan losses			60,283					9,600				35,511
Non-interest (loss) income			(4,099		)			5,651				7,797
Non-interest expense			27,782					26,076				27,949
Loss before income taxes			(67,038		)			(2,402		)		(28,390		)
Net loss			(67,067		)			(762		)		(28,493		)
Net loss available to common shareholders		$	(67,067		)	$		(762		)	$	(28,219		)
Financial ratios:
Return on average assets (1)			(7.90)		%			(0.09)		%		(3.18)		%
Return on average equity (1)			(96.57)		%			(0.85)		%		(38.36)		%
Return on average tangible equity (1),(2)			(116.91)		%			(1.39)		%		(46.01)		%
Net interest margin (1)			3.26		%			3.56		%		3.37		%
Efficiency ratio			132.13		%			78.37		%		79.69		%
Efficiency ratio, excluding non-operating income and non-operating expense (3)			130.57		%			78.37		%		78.84		%
Loss per common share:
Basic		$	(1.25		)	$		(0.03		)	$	(0.67		)
Diluted		$	(1.25		)	$		(0.03		)	$	(0.67		)
Average equity to average assets			8.18		%			10.14		%		8.29		%
	March 31,										December 31,
	2011					2010					2010
At period-end:
Total assets	$			3,333,808		$	3,531,998				$		3,417,546
Total deposits				2,847,467			2,924,815						2,940,460
Loans receivable, net of allowance for loan losses				2,211,824			2,629,305						2,439,633
Loans held-for-sale(4)				115,473			4,971						13,824
Investments				470,546			430,104						493,493
Borrowings				33,329			78,943						33,417
Junior subordinated debentures				92,786			92,786						92,786
Shareholders' Equity				286,739			356,129						268,242
Credit quality and capital ratios:
Allowance for loan losses to gross loans held-for-investment				2.58	%		2.35		%				3.24		%
Non-performing assets to gross loans held-for-investment,  loans held-for-sale and real estate owned				8.05	%		3.32		%				7.00		%
Allowance for loan losses to non-performing loans held-for-investment				50.41	%		73.53		%				47.02		%
Total capital (to risk-weighted assets):
Sun Bancorp, Inc.				13.73	%		11.49		%				12.68		%
Sun National Bank				12.65	%		10.99		%				12.25		%
Tier 1 capital (to risk-weighted assets):
Sun Bancorp, Inc.				12.11	%		10.23		%				11.41		%
Sun National Bank				11.38	%		9.73		%				10.98		%
Leverage Ratio
Sun Bancorp, Inc.				9.62	%		9.21		%				8.93		%
Sun National Bank				9.05	%		8.80		%				8.57		%
Book value per common share	$			3.62		$	15.22				$		5.33
Tangible book value per common share	$			3.02		$	9.18				$		4.36
(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) Efficiency ratio, excluding non-operating income and non-operating expense, is computed by dividing non-interest expense for the period by the summation of net interest income and non-interest income. Non-interest income for the three months ended March 31, 2011 and December 31, 2010 excludes net impairment losses on available for sale securities of $250,000 and $379,000, respectively.
(4) Amount at March 31, 2011 includes $110.5 million of commercial real estate loans marked at fair value.

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SUN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
(Dollars in thousands, except par value amounts)
	March 31, 2011			December 31, 2010
ASSETS
Cash and due from banks	$	68,480		$	36,522
Interest-earning bank balances		198,024			150,704
Cash and cash equivalents		266,504			187,226
Investment securities available for sale (amortized cost of $456,557 and  $483,255 at March 31, 2011 and December 31, 2010, respectively)		452,270			472,864
Investment securities held to maturity (estimated fair value of $2,515 and  $3,155 at March 31, 2011 and December 31, 2010, respectively)		2,427			3,039
Loans receivable (net of allowance for loan losses of $58,498 and $81,713 at March 31, 2011 and December 31, 2010, respectively)		2,211,824			2,439,633
Loans held-for-sale		115,473			13,824
Restricted equity investments		15,849			17,590
Bank properties and equipment, net		53,582			53,428
Real estate owned		4,439			3,913
Accrued interest receivable		9,225			10,004
Goodwill		38,188			38,188
Intangible assets, net		9,710			10,631
Deferred taxes, net		1,751			4,245
Bank owned life insurance (BOLI)		75,202			74,656
Other assets		77,364			88,305
Total assets	$	3,333,808		$	3,417,546
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits	$	2,847,467		$	2,940,460
Securities sold under agreements to repurchase – customers		6,591			6,307
Advances from the Federal Home Loan Bank of New York (FHLBNY)		3,687			3,999
Securities sold under agreements to repurchase – FHLBNY		15,000			15,000
Obligations under capital lease		8,051			8,111
Junior subordinated debentures		92,786			92,786
Other liabilities		73,487			82,641
Total liabilities		3,047,069			3,149,304
Shareholders’ equity:
Preferred stock, $1 par value, 1,000,000 shares authorized; none issued		-			-
Common stock, $1 par value, 100,000,000 shares authorized; 81,265,130 shares issued  and 79,158,407 shares outstanding at March 31, 2011; 52,463,594 shares issued  and 50,356,871 shares outstanding at December 31, 2010		81,265			52,464
Additional paid-in capital		491,488			438,335
Retained earnings		(257,082	)		(190,015	)
Accumulated other comprehensive loss		(2,536	)		(6,146	)
Deferred compensation plan trust		(234	)		(234	)
Treasury stock at cost, 2,106,723 shares at  March 31, 2011 and December 31, 2010		(26,162	)		(26,162	)
Total shareholders’ equity		286,739			268,242
Total liabilities and shareholders’ equity	$	3,333,808		$	3,417,546

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SUN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in thousands, except share and per share amounts)
	For the Three Months Ended March 31,
	2011			2010
INTEREST INCOME
Interest and fees on loans	$	28,428		$	32,386
Interest on taxable investment securities		2,619			3,189
Interest on non-taxable investment securities		759			1,005
Dividends on restricted equity investments		243			227
Total interest income		32,049			36,807
INTEREST EXPENSE
Interest on deposits		5,590			7,627
Interest on funds borrowed		355			549
Interest on junior subordinated debentures		978			1,008
Total interest expense		6,923			9,184
Net interest income		25,126			27,623
PROVISION FOR LOAN LOSSES		60,283			9,600
Net interest (loss) income after provision for loan losses		(35,157	)		18,023
NON-INTEREST (LOSS) INCOME
Service charges on deposit accounts		2,550			2,944
Other service charges		86			79
Gain on sale of loans		925			603
Impairment losses on available for sale securities		(250	)		-
Loss on sale of available for sale securities		(1,013	)		-
Investment products income		888			603
BOLI income		546			538
Derivative credit valuation adjustment		(8,391	)		(30	)
Other		560			914
Total non-interest (loss) income		(4,099	)		5,651
NON-INTEREST EXPENSE
Salaries and employee benefits		12,986			12,859
Occupancy expense		3,404			3,540
Equipment expense		1,682			1,736
Data processing expense		1,065			1,086
Amortization of intangible assets		921			921
Insurance expense		2,013			1,507
Professional fees		765			584
Advertising expense		565			580
Problem loan expense		3,107			823
Real estate owned (income) expense, net		(5	)		216
Office supplies expense		345			365
Other		934			1,859
Total non-interest expense		27,782			26,076
LOSS BEFORE INCOME TAXES		(67,038	)		(2,402	)
INCOME TAX EXPENSE (BENEFIT)		29			(1,640	)
NET LOSS		(67,067	)		(762	)
Preferred stock dividends and discount accretion		-			-
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS	$	(67,067	)	$	(762	)
Basic loss per share	$	(1.25	)	$	(0.03	)
Diluted loss per share	$	(1.25	)	$	(0.03	)
Weighted average shares – basic	53,575,346			23,365,406
Weighted average shares – diluted	53,575,346			23,365,406

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SUN BANCORP, INC. AND SUBSIDIARIES
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in thousands)
	2011			2010			2010			2010			2010
	Q1			Q4			Q3			Q2			Q1
Balance sheet at quarter end:
Cash and cash equivalents	$	266,504		$	187,226		$	205,265		$	52,810		$	52,570
Investment securities		470,546			493,493			479,055			428,362			430,104
Loans held-for-investment:
Commercial and industrial		1,862,903			2,103,492			2,235,715			2,289,148			2,238,967
Home equity		232,318			239,729			244,274			252,425			257,368
Second mortgage		50,388			53,912			58,305			61,941			65,857
Residential real estate		69,311			65,250			68,938			68,054			66,481
Other		55,402			58,963			58,930			62,956			63,924
Total gross loans held-for-investment		2,270,322			2,521,346			2,666,162			2,734,524			2,692,597
Allowance for loan losses		(58,498	)		(81,713	)		(74,579	)		(73,752	)		(63,292	)
Net loans held-for-investment		2,211,824			2,439,633			2,591,583			2,660,772			2,629,305
Loans held-for-sale		115,473			13,824			16,616			10,980			4,971
Goodwill		38,188			38,188			38,188			38,188			127,894
Intangible assets, net		9,710			10,631			11,552			12,474			13,395
Total assets		3,333,808			3,417,546			3,603,637			3,512,310			3,531,998
Total deposits		2,847,467			2,940,460			3,051,894			2,961,816			2,924,815
Federal funds purchased		-			-			-			37,000			25,000
Securities sold under agreements to repurchase - customers		6,591			6,307			15,702			17,156			15,767
Advances from FHLBNY		3,687			3,999			4,308			4,613			14,916
Securities sold under agreements to repurchase - FHLBNY		15,000			15,000			15,000			15,000			15,000
Obligations under capital lease		8,051			8,111			8,169			8,217			8,260
Junior subordinated debentures		92,786			92,786			92,786			92,786			92,786
Total shareholders' equity		286,739			268,242			303,038			273,161			356,129
Quarterly average balance sheet:
Loans(1):
Commercial and industrial	$	2,072,519		$	2,184,212		$	2,292,274		$	2,262,656		$	2,241,443
Home equity		235,962			241,510			250,033			256,697			258,359
Second mortgage		53,402			57,310			60,729			64,051			67,435
Residential real estate		73,662			88,144			82,094			74,427			73,333
Other		55,847			57,522			59,998			62,249			63,804
Total gross loans		2,491,392			2,628,698			2,745,128			2,720,080			2,704,374
Securities and other interest-earning assets		639,092			658,013			518,262			450,947			459,309
Total interest-earning assets		3,130,484			3,286,711			3,263,390			3,171,027			3,163,683
Total assets		3,394,139			3,582,647			3,578,296			3,554,630			3,554,244
Non-interest-bearing demand deposits		481,605			509,093			505,036			471,033			440,860
Total deposits		2,904,448			3,032,594			3,043,268			2,957,970			2,919,477
Total interest-bearing liabilities		2,549,566			2,657,984			2,683,915			2,640,155			2,672,746
Total shareholders' equity		277,808			297,118			287,897			358,300			360,475
Capital and credit quality measures:
Total capital (to risk-weighted assets):
Sun Bancorp, Inc.		13.73	%		12.68	%		12.92	%		11.09	%		11.49	%
Sun National Bank		12.65	%		12.25	%		12.04	%		10.64	%		10.99	%
Tier 1 capital (to risk-weighted assets):
Sun Bancorp, Inc.		12.11	%		11.41	%		8.02	%		9.82	%		10.23	%
Sun National Bank		11.38	%		10.98	%		10.77	%		9.37	%		9.73	%
Leverage ratio:
Sun Bancorp, Inc.		9.62	%		8.93	%		6.67	%		8.60	%		9.21	%
Sun National Bank		9.05	%		8.57	%		8.91	%		8.22	%		8.80	%
Average equity to average assets		8.18	%		8.29	%		8.05	%		10.08	%		10.14	%
Allowance for loan losses to total gross loans held-for-investment		2.58	%		3.24	%		2.80	%		2.70	%		2.35	%
Non-performing assets to gross loans held-for-investment, loans held-for-sale and real estate owned		8.05	%		7.00	%		7.77	%		4.62	%		3.32	%
Allowance for loan losses to non-performing loans held-for-investment		50.41	%		47.02	%		36.46	%		59.87	%		73.53	%
Other data:
Net charge-offs		(83,498	)		(28,377	)		(41,602	)		(3,518	)		(6,261	)
Non-performing assets:
Non-accrual loans	$	113,959		$	159,426		$	192,769		$	120,685		$	78,403
Non-accrual loans held-for-sale		71,771			-			-			-			-
Troubled debt restructurings, non-accrual		831			11,796			-			-			-
Loans past due 90 days and accruing		1,263			2,554			11,802			2,500			7,678
Real estate owned, net		4,439			3,913			4,272			3,828			3,688
Total non-performing assets		192,263			177,689			208,843			127,013			89,769
Troubled debt restructuring, performing		20,276			20,341			20,396			19,161			19,353
(1) Average balances include non-accrual loans and loans held-for-sale

7

SUN BANCORP, INC. AND SUBSIDIARIES
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in thousands, except share and per share amounts)
	2011			2010			2010			2010			2010
	Q1			Q4			Q3			Q2			Q1
Profitability for the quarter:
Tax-equivalent interest income	$	32,458		$	35,736		$	36,971		$	37,349		$	37,347
Interest expense		6,923			8,081			8,686			8,690			9,184
Tax-equivalent net interest income		25,535			27,655			28,285			28,659			28,163
Tax-equivalent adjustment		409			382			399			479			540
Provision for loan losses		60,283			35,511			42,429			13,978			9,600
Non-interest (loss) income excluding net impairment losses on available for sale securities		(3,849	)		8,176			(1,402	)		4,416			5,651
Net impairment losses on available for sale securities		(250	)		(379	)		(950	)		-			-
Non-interest expense excluding amortization of intangible assets		26,861			27,028			28,419			27,060			25,155
Amortization of intangible assets		921			921			922			90,627			921
Loss before income taxes		(67,038	)		(28,390	)		(46,236	)		(99,068	)		(2,402	)
Income tax expense (benefit)		29			103			28,757			(17,898	)		(1,640	)
Net loss		(67,067	)		(28,493	)		(74,993	)		(81,170	)		(762	)
Net loss available to common shareholders	$	(67,067	)	$	(28,219	)	$	(75,267	)	$	(81,170	)	$	(762	)
Financial ratios:
Return on average assets (1)		(7.90)	%		(3.18)	%		(8.38)	%		(9.13)	%		(0.09)	%
Return on average equity (1)		(96.57)	%		(38.36)	%		(104.19)	%		(90.62)	%		(0.85)	%
Return on average tangible equity (1),(2)		(116.91)	%		(46.01)	%		(126.27)	%		(148.70)	%		(1.39)	%
Net interest margin (1)		3.26	%		3.37	%		3.47	%		3.62	%		3.56	%
Efficiency ratio		132.13	%		79.69	%		114.91	%		361.04	%		78.37	%
Efficiency ratio, excluding non-operating income and non-operating expense		130.57	%		78.84	%		110.79	%		85.84	%		78.37	%
Per share data:
Loss per common share:
Basic	$	(1.25	)	$	(0.67	)	$	(3.14	)	$	(3.46	)	$	(0.03	)
Diluted	$	(1.25	)	$	(0.67	)	$	(3.14	)	$	(3.46	)	$	(0.03	)
Book value	$	3.62		$	5.33		$	7.62		$	11.63		$	15.22
Tangible book value	$	3.02		$	4.36		$	5.86		$	9.48		$	9.18
Average basic shares	53,575,346			42,119,553			23,960,691			23,431,305			23,365,406
Average diluted shares	53,575,346			42,119,553			23,960,691			23,431,305			23,365,406
Operating non-interest (loss) income:
Service charges on deposit accounts	$	2,550		$	2,715		$	2,869		$	3,044		$	2,944
Other service charges		86			94			92			99			79
Gain on sale of loans		925			1,324			921			712			603
Net (loss) gain on sale of available for sale securities		(1,013	)		4,606			-			145			-
Investment products income		888			728			708			792			603
BOLI income		546			452			545			539			538
Derivative credit valuation adjustment		(8,391	)		(2,705	)		(7,498	)		(1,980	)		(31	)
Other income		560			962			961			1,065			915
Total operating non-interest (loss)  income		(3,849	)		8,176			(1,402	)		4,416			5,651
Non-operating loss(3):
Net impairment losses on available for sale securities recognized in earnings		(250	)		(379	)		(950	)		-			-
Total non-operating loss		(250	)		(379	)		(950	)		-			-
Total non-interest (loss) income	$	(4,099	)	$	7,797		$	(2,352	)	$	4,416		$	5,651
Operating non-interest expense:
Salaries and employee benefits	$	12,986		$	12,920		$	15,079		$	14,361		$	12,859
Occupancy expense		3,404			3,043			3,030			2,895			3,540
Equipment expense		1,682			1,634			1,663			1,750			1,736
Data processing expense		1,065			1,133			1,039			1,101			1,086
Amortization of intangible assets		921			921			922			921			921
Insurance expense		2,013			2,064			2,105			2,020			1,507
Professional fees		765			1,220			461			459			584
Advertising expense		565			390			833			532			580
Problem loan expense		3,107			1,923			956			1,461			823
Real estate owned (income) expense, net		(5	)		398			93			94			216
Office supplies expense		345			338			377			421			365
Other expenses		934			1,965			2,783			1,965			1,859
Total operating non-interest expense		27,782			27,949			29,341			27,980			26,076
Non-operating expense(3):
Goodwill impairment		-			-			-			89,706			-
Total non-operating expense	$	-		$	-			-			89,706			-
Total non-interest expense	$	27,782		$	27,949		$	29,341		$	117,686		$	26,076
(1) Amounts are annualized.
(2) Return on average tangible equity is computed by dividing annualized net income for the period by average tangible equity. Average tangible equity equals average equity less average identifiable intangible assets and goodwill.
(3) Amount consists of items which the Company believes are not a result of normal operations.

8

SUN BANCORP, INC. AND SUBSIDIARIES
AVERAGE BALANCE SHEETS (Unaudited)
(Dollars in thousands)
	For the Three Months Ended March 31
	2011							2010
	Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Cost			Balance		Expense		Cost
Interest-earning assets:
Loans receivable (1),(2):
Commercial and industrial	$	2,072,519	$	23,152		4.47	%	$	2,241,443	$	26,166		4.67	%
Home equity		235,962		2,550		4.32			258,359		3,032		4.69
Second mortgage		53,402		775		5.81			67,435		1,063		6.31
Residential real estate		73,662		1,005		5.46			73,333		1,019		5.56
Other		55,847		946		6.78			63,804		1,106		6.93
Total loans receivable		2,491,392		28,428		4.56			2,704,374		32,386		4.79
Investment securities		480,964		3,934		3.27			449,691		4,957		4.41
Interest-earning bank balances		158,128		96		0.24			9,618		4		0.17
Total interest-earning assets		3,130,484		32,458		4.15			3,163,683		37,347		4.72
Non-interest earning assets:
Cash and due from banks		67,944							45,194
Bank properties and equipment, net		53,538							53,081
Goodwill and intangible assets, net		48,352							141,859
Other assets		93,821							150,427
Total non-interest-earning assets		263,655							390,561
Total assets	$	3,394,139						$	3,554,244
Interest-bearing liabilities:
Interest-bearing deposit accounts:
Interest-bearing demand deposits	$	1,393,182	$	2,178		0.63	%	$	1,260,824	$	2,781		0.88	%
Savings deposits		277,409		427		0.62			301,302		651		0.86
Time deposits		752,252		2,985		1.59			916,491		4,195		1.83
Total interest-bearing deposit accounts		2,422,843		5,590		0.92			2,478,617		7,627		1.23
Short-term borrowings:
Federal funds purchased		-		-		-			47,556		63		0.53
Securities sold under agreements to repurchase - customers		7,064		3		0.17			15,487		5		0.13
Long-term borrowings:
FHLBNY advances (3)		18,794		218		4.64			30,019		343		4.57
Obligations under capital lease		8,079		134		6.63			8,281		138		6.67
Junior subordinated debentures		92,786		978		4.22			92,786		1,008		4.35
Total borrowings		126,723		1,333		4.21			194,129		1,557		3.21
Total interest-bearing liabilities		2,549,566		6,923		1.09			2,672,746		9,184		1.37
Non-interest bearing liabilities:
Non-interest-bearing demand deposits		481,605							440,860
Other liabilities		85,161							80,163
Total non-interest bearing liabilities		566,766							521,023
Total liabilities		3,116,332							3,193,769
Shareholders' equity		277,808							360,475
Total liabilities and shareholders' equity	$	3,394,140						$	3,554,244
Net interest income			$	25,535						$	28,163
Interest rate spread (4)						3.06	%						3.35	%
Net interest margin (5)						3.26	%						3.56	%
Ratio of average interest-earning assets to average interest-bearing liabilities						122.78	%						118.37	%
(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)  Amounts include Advances from FHLBNY and Securities sold under agreements to repurchase - FHLBNY.
(4)  Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(5)  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
	March 31, 2011							December 31, 2010
	Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Cost			Balance		Expense		Cost
Interest-earning assets:
Loans receivable (1),(2):
Commercial and industrial	$	2,072,519	$	23,152		4.47	%	$	2,184,212	$	25,654		4.70	%
Home equity		235,962		2,550		4.32			241,510		2,744		4.54
Second mortgage		53,402		775		5.81			57,310		869		6.07
Residential real estate		73,662		1,005		5.46			88,144		1,179		5.35
Other		55,847		946		6.78			57,522		969		6.74
Total loans receivable		2,491,392		28,428		4.56			2,628,698		31,415		4.78
Investment securities		480,964		3,934		3.27			491,588		4,216		3.43
Interest-earning bank balances		158,128		96		0.24			166,425		105		0.25
Total interest-earning assets		3,130,484		32,458		4.15			3,286,711		35,736		4.35
Non-interest earning assets:
Cash and due from banks		67,944							47,492
Bank properties and equipment, net		53,538							53,018
Goodwill and intangible assets, net		48,352							49,402
Other assets		93,821							146,024
Total non-interest-earning assets		263,655							295,936
Total assets	$	3,394,139						$	3,582,647
Interest-bearing liabilities:
Interest-bearing deposit accounts:
Interest-bearing demand deposits	$	1,393,182	$	2,178		0.63	%	$	1,387,423	$	2,581		0.74	%
Savings deposits		277,409		427		0.62			281,401		510		0.72
Time deposits		752,252		2,985		1.59			854,677		3,566		1.67
Total interest-bearing deposit accounts		2,422,843		5,590		0.92			2,523,501		6,657		1.06
Short-term borrowings:
Securities sold under agreements to repurchase - customers		7,064		3		0.17			14,457		8		0.22
Long-term borrowings:
FHLBNY advances (3)		18,794		218		4.64			19,102		246		5.15
Obligations under capital lease		8,079		134		6.63			8,138		138		6.78
Junior subordinated debentures		92,786		978		4.22			92,786		1,032		4.45
Total borrowings		126,723		1,333		4.21			134,483		1,424		4.24
Total interest-bearing liabilities		2,549,566		6,923		1.09			2,657,984		8,081		1.22
Non-interest bearing liabilities:
Non-interest-bearing demand deposits		481,605							509,093
Other liabilities		85,161							118,452
Total non-interest bearing liabilities		566,766							627,545
Total liabilities		3,116,332							3,285,529
Shareholders' equity		277,808							297,118
Total liabilities and shareholders' equity	$	3,394,140						$	3,582,647
Net interest income			$	25,535						$	27,655
Interest rate spread (4)						3.06	%						3.13	%
Net interest margin (5)						3.26	%						3.37	%
Ratio of average interest-earning assets to average interest-bearing liabilities						122.78	%						123.65	%
(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)  Amounts include Advances from FHLBNY and Securities sold under agreements to repurchase - FHLBNY.
(4)  Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(5)  Net interest margin represents net interest income as a percentage of average interest-earning assets.

10