Sun Bancorp (SNBC) 8-K Sun Bancorp, Inc. Reports Second Quarter 2010 Results

News Release

For Immediate Release

Contact:  Thomas X. Geisel, President & CEO, (856) 691-7700

Sun Bancorp, Inc. Reports Second Quarter 2010 Results

VINELAND, NJ – July 27, 2010 – Sun Bancorp, Inc. (NASDAQ: SNBC) reported today a net loss available to common shareholders of $81.2 million, or $3.46 loss per diluted share, for the second quarter ended June 30, 2010, compared to a net loss available to common shareholders of $8.8 million, or $0.38 loss per diluted share, for the second quarter ended June 30, 2009.  Included in the second quarter 2010 is a goodwill impairment charge of $89.7 million, or $3.24 per share.  This non-cash charge had no effect on the Company's or the Bank's cash balances, liquidity, or regulatory capital ratios.

The following are additional key items which affected the results for the second quarter 2010 as compared to the second quarter 2009:

 ● Loan loss provision of $14.0 million, or $0.35 per share, as compared to $6.9 million, or $0.18 per share, for the comparable prior year period.

● Goodwill impairment of $89.7 million. Goodwill at June 30, 2010 is $38.2 million, as compared to the linked quarter of $127.9 million.

● $2.0 million fair value credit adjustment on customer derivatives.

● $1.1 million of personnel related expenses.

● An increase in the net interest margin to 3.62% from 3.56% in the first quarter.

The second quarter 2009 included total charges of $10.3 million, or $0.34 per diluted share, as a result of the preferred shares issued and subsequently repurchased under the Troubled Asset Relief Program (“TARP”), the FDIC 5 basis point special assessment, as well as other-than-temporary impairment (“OTTI”) charges.

For the six months ended June 30, 2010, the Company reported a net loss available to common shareholders of $81.9 million, or $3.50 loss per diluted share, as compared to a net loss available to common shareholders of $9.6 million, or $0.42 loss per diluted share for the comparable prior year period. The six months ended June 30, 2010 includes the goodwill impairment charge of $89.7 million, or $3.24 per diluted share.  In addition, the 2009 comparable period included total charges of $11.8 million, or $0.40 per diluted share, as a result of the preferred shares issued and subsequently repurchased under the TARP, the FDIC 5 basis point special assessment, as well as OTTI charges.

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“As reported earlier and as a key part to the Company’s strategic growth plan, we signed investment agreements with private equity funds affiliated with WL Ross and Company, the Bank’s founding Brown Family shareholders, and others, to invest $100 million in the Company,” remarked Thomas X. Geisel, president and chief executive officer of Sun Bancorp.  “The capital allows us not only to absorb the expected impact of this still difficult credit environment but it also allows us the opportunity to look at various strategies to strengthen our balance sheet and grow our business.”

“The successful focus to diversify our lending businesses, increase core deposits, loan yields and margin have all continued to trend favorably this quarter.  We know we have a strong core business that continues to show brightness through the clouds of the current economy,” remarked Geisel.

The following is an overview of the core financial highlights for the quarter:

●   Total assets were $3.51 billion at June 30, 2010, as compared to $3.53 billion at March 31, 2010 and $3.58 billion at December 31, 2009.

●   Total loans before allowance for loan losses were $2.75 billion at June 30, 2010, an increase from $2.70 billion at March 31, 2010 and $2.72 billion at December 31, 2009.  Commercial loans, on average, were essentially level with the linked first quarter 2010, while residential mortgages increased on average 1.5%, offset by a decrease on home equity loans of 1.5%. Commercial loan demand in the second quarter was tepid although activity increased towards the latter half of the quarter. Commercial line utilization rates remain below historical averages.

●   The provision for loan losses was $14.0 million for the second quarter 2010, increasing the allowance for loan losses to 2.69% of outstanding loans at June 30, 2010, as compared to the allowance for loan losses to outstanding loans of 2.35% at March 31, 2010 and 1.62% at June 30, 2009.  Net charge-offs during the second quarter were $3.5 million, or 0.1% of average loans, as compared to $6.3 million, or 0.23% of average loans for the linked quarter and $2.0 million, or 0.07% of average loans outstanding for the comparable prior year quarter. Higher reserve balances reflect a migration of loans to higher risk categories and continued pressure on collateral values. The Company remains committed to its strategy of prudently and promptly addressing problem credits.

●   Total non-performing assets were $127.0 million, or 4.62% of total loans and real estate owned, as compared to $89.8 million at March 31, 2010, or 3.32% of total loans and real estate owned and $105.4 million at December 31, 2009, or 3.86% of total loans and real estate owned.  The increase in non-performing assets was concentrated in a small number of relationships. The allowance for loan losses to non-performing loans was 59.87% at June 30, 2010, as compared to 73.53% at March 31, 2010 and 62.56% at December 31, 2009. · 

●   Total deposits were $2.96 billion at June 30, 2010, which increased 1.3% and 1.8% over March 31, 2010 and December 31, 2009, respectively.  Average deposits increased $38.5 million, or 1.3% over the linked quarter as average interest-bearing demand deposits increased 1.3%, or $15.8 million, offset by a decrease in average certificates of deposit of $10.5 million, or 1.1%.  In addition, average non-interest-bearing deposits increased $30.2 million, or 6.8% over the linked quarter. The Company continues to be successful in replacing higher-yielding term deposits with lower-cost transaction accounts.

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●   The second quarter net interest margin was 3.62%, as compared to the linked quarter of 3.56% and 3.01% for the comparable prior year quarter.  The yield on average loans was 4.84% for the second quarter 2010, an increase of five basis points over the linked quarter and one basis point over the comparable prior year quarter.  The cost of interest-bearing deposits of 1.16% for the second quarter continues to decrease over prior periods as it decreased seven basis points from 1.23% for the linked quarter and 79 basis points from the comparable prior year quarter.  The interest rate spread also increased to 3.39% for the second quarter 2010, as compared to 3.35% for the linked quarter and 2.68% for the comparable prior year quarter. Normalized for non-accrual interest reversals during the period, the Company’s net interest margin was 3.74% for the second quarter 2010, as compared to 3.61% for the linked quarter, continuing a positive trend of improvement over the last several quarters.

●   Total operating non-interest income for the quarter of $4.4 million decreased $1.2 million, or 21.9%, over the linked quarter and $1.9 million, or 29.8% over the comparable prior year quarter. The decrease over the linked first quarter and prior year quarter was primarily attributable to a $2.0 million fair value credit adjustment on the Company’s derivative portfolio primarily as a result of the deterioration in credit components of two impaired commercial relationships for which the Company engaged in derivative transactions.

●   Total operating non-interest expense for the quarter of $28.0 million, increased $1.9 million or 7.3% over linked quarter but was relatively flat with the comparable prior year quarter. The increase over the linked quarter was attributable to increases in personnel expenses of $1.5 million and problem loan costs of $638,000. Personnel expenses increased primarily as a result of $471,000 in severance related to its PRIDE efficiency initiative and $454,000 related to the restructuring of change in control plans. One-time death benefits of $171,000 were also incurred due to the death of an executive officer. The additional expenses related to problem loan costs were as a result of property management fees and construction related costs related to two specific commercial properties held as collateral as well as higher legal expenses.

●   Sun recently completed an evaluation of goodwill. Having completed this analysis, the Company has determined that $89.7 million of goodwill associated with previous acquisitions was impaired, and this charge is reflected in second quarter results. Such a charge is non-cash in nature and does not effect Sun's liquidity, tangible equity or regulatory capital ratios. Sun will evaluate its remaining goodwill again in the fourth quarter as part of its established annual review process. Goodwill at June 30, 2010 is $38.2 million, as compared to linked quarter of $127.9 million.

●   The income tax benefit is a result of the pre-tax loss in combination with the relatively large levels of tax-free income earned on tax-exempt securities and BOLI policies.

●   The Company’s ratio of tangible equity to tangible assets was 6.43% at June 30, 2010, as compared to 6.34% at March 31, 2010 and 6.24% at December 31, 2009. At June 30, 2010, the Company’s total risk-based capital ratio is estimated to be 11.08%, Tier 1 capital ratio is estimated to be 9.81%, and the leverage capital ratio is estimated to be 8.60%, subject to regulatory filings.

The Company will hold its regularly scheduled conference call on Wednesday, July 28, 2010, at 3:00 p.m. (ET).  Participants may listen to the live Web cast through the Sun Bancorp 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. is a $3.51 billion asset bank holding company headquartered in Vineland, New Jersey.  Its primary subsidiary is Sun National Bank, serving customers through 71 locations in New Jersey.  The Bank is an Equal Housing Lender and its deposits are insured up to the legal maximum by the 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.

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SUN BANCORP, INC. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS (Unaudited)
(Dollars in thousands, except per share amounts)
	For the Three Months Ended							For the Six Months Ended
	June 30,							June 30,
		2010			2009			2010			2009
Profitability for the period:
Net interest income		$	28,180		$	23,784		$	55,803		$	45,623
Provision for loan losses			13,978			6,950			23,578			10,950
Non-interest income			4,416			1,732			10,067			7,053
Non-interest expense			117,686			27,650			143,762			51,467
Loss before income taxes			(99,068	)		(9,084	)		(101,470	)		(9,741	)
Net loss			(81,170	)		(4,634	)		(81,932	)		(4,249	)
Net loss available to common shareholders		$	(81,170	)	$	(8,780	)	$	(81,932	)	$	(9,600	)
Financial ratios:
Return on average assets(1)			(9.13)	%		(0.51)	%		(4.61)	%		(0.23)	%
Return on average equity(1)			(90.62)	%		(5.01)	%		(45.60)	%		(2.09)	%
Return on average tangible equity(1),(2)			(148.70)	%		(8.23)	%		(75.00)	%		(3.25)	%
Net interest margin(1)			3.62	%		3.01	%		3.59	%		2.87	%
Efficiency ratio			361.04	%		108.36	%		218.25	%		97.70	%
Efficiency ratio, excluding non-operating income and non-operating expense(3)			85.84	%		91.94	%		82.06	%		89.49	%
Loss per common share:
Basic		$	(3.46	)	$	(0.38	)	$	(3.50	)	$	(0.42	)
Diluted		$	(3.46	)	$	(0.38	)	$	(3.50	)	$	(0.42	)
Average equity to average assets			10.08	%		10.25	%		10.11	%		11.23	%

	June 30,						December 31,
	2010		2009				2009
At period-end:
Total assets	$	3,512,310		$	3,561,110		$	3,578,905
Total deposits		2,961,816			2,875,502			2,909,268
Loans receivable, net of allowance for loan losses		2,671,752			2,689,656			2,657,694
Investments		428,362			431,231			457,192
Borrowings		81,986			144,086			146,193
Junior subordinated debentures		92,786			92,786			92,786
Shareholders’ equity		273,161			360,660			356,593
Credit quality and capital ratios:
Allowance for loan losses to gross loans		2.69	%		1.62	%		2.21	%
Non-performing assets to gross loans and real estate owned		4.62	%		2.70	%		3.86	%
Allowance for loan losses to non-performing loans		59.87	%		69.82	%		62.56	%
Total capital (to risk-weighted assets)(4):
Sun Bancorp, Inc.		11.08	%		11.62	%		11.38	%
Sun National Bank		10.63	%		11.15	%		10.87	%
Tier 1 capital (to risk-weighted assets)(4):
Sun Bancorp, Inc.		9.81	%		10.37	%		10.12	%
Sun National Bank		9.37	%		9.90	%		9.61	%
Leverage ratio(4):
Sun Bancorp, Inc.		8.60	%		9.29	%		9.08	%
Sun National Bank		8.20	%		8.88	%		8.58	%
Book value per common share	$	11.63		$	15.59		$	15.29
Tangible book value per common share	$	9.48		$	9.35		$	9.19
(1) Amounts for the three and six months ended are annualized.
(2) Return on average tangible equity is computed by dividing annualized net income for the period by average tangible equity. Average tangible equity equals average equity less average identifiable intangible assets and goodwill.
(3) 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 expense for the three and six months ended June 30, 2010 excludes a goodwill impairment charge of $89.7 million. Non-interest income for the three and six months ended June 30, 2009 exclude a net impairment loss on available for sale securities of $4.6 million and $4.8 million, respectively.
(4) June 30, 2010 capital ratios are estimated, subject to regulatory filings.

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SUN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
(Dollars in thousands, except par value amounts)
	June 30, 2010			December 31, 2009
ASSETS
Cash and due from banks	$	49,233		$	53,857
Interest-earning bank balances		3,577			5,263
Cash and cash equivalents		52,810			59,120
Investment securities available for sale (amortized cost of $413,215 and $435,267 at June 30, 2010 and December 31, 2009, respectively)		408,464			434,738
Investment securities held to maturity (estimated fair value of $4,655 and $7,121 at June 30, 2010 and December 31, 2009, respectively)		4,497			6,955
Loans receivable (net of allowance for loan losses of $73,752 and $59,953 at June 30, 2010 and December 31, 2009, respectively)		2,671,752			2,657,694
Restricted equity investments		15,401			15,499
Bank properties and equipment, net		52,655			53,246
Real estate owned		3,828			9,527
Accrued interest receivable		11,380			12,235
Goodwill		38,188			127,894
Intangible assets, net		12,474			14,316
Deferred taxes, net		43,153			20,721
Bank owned life insurance (BOLI)		73,659			77,753
Other assets		124,049			89,207
Total assets	$	3,512,310		$	3,578,905
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits	$	2,961,816		$	2,909,268
Federal funds purchased		37,000			89,000
Securities sold under agreements to repurchase – customers		17,156			18,677
Advances from the Federal Home Loan Bank of New York (FHLBNY)		4,613			15,215
Securities sold under agreements to repurchase – FHLBNY		15,000			15,000
Obligations under capital lease		8,217			8,301
Junior subordinated debentures		92,786			92,786
Other liabilities		102,561			74,065
Total liabilities		3,239,149			3,222,312
Shareholders’ equity:
Preferred stock, $1 par value, 1,000,000 shares authorized; none issued		-			-
Common stock, $1 par value, 50,000,000 shares authorized; 25,588,859 shares issued and 23,482,136 shares outstanding at June 30, 2010; 25,435,994 shares issued and 23,329,271 shares outstanding at December 31, 2009		25,589			25,436
Additional paid-in capital		363,332			362,189
Retained earnings		(86,529	)		(4,597	)
Accumulated other comprehensive loss		(2,855	)		(149	)
Deferred compensation plan trust		(214	)		(124	)
Treasury stock at cost, 2,106,723 shares at  June 30, 2010 and December 31, 2009		(26,162	)		(26,162	)
Total shareholders’ equity		273,161			356,593
Total liabilities and shareholders’ equity	$	3,512,310		$	3,578,905

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SUN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in thousands, except per share amounts)
	For the Three Months Ended  June 30,								For the Six Months Ended June 30,
	2010				2009				2010				2009
INTEREST INCOME
Interest and fees on loans	$		32,926		$		32,996		$		65,312		$		65,188
Interest on taxable investment securities			2,850				3,706				6,039				7,936
Interest on non-taxable investment securities			888				882				1,893				1,726
Dividends on restricted equity investments			206				217				433				390
Total interest income			36,870				37,801				73,677				75,240
INTEREST EXPENSE
Interest on deposits			7,236				12,405				14,863				26,335
Interest on funds borrowed			431				479				980				963
Interest on junior subordinated debentures			1,023				1,133				2,031				2,319
Total interest expense			8,690				14,017				17,874				29,617
Net interest income			28,180				23,784				55,803				45,623
PROVISION FOR LOAN LOSSES			13,978				6,950				23,578				10,950
Net Interest income after provision for loan losses			14,202				16,834				32,225				34,673
NON-INTEREST INCOME
Service charges on deposit accounts			3,044				3,096				5,988				6,140
Other service charges			99				79				178				161
Gain on sale of loans			712				693				1,315				1,038
Gain on derivative instruments			-				85				-				212
Investment products income			792				756				1,395				1,278
BOLI income			539				561				1,077				1,074
Net impairment losses on available for sale securities:
Total impairment losses		-				(6,432)				-				(6,710)
Portion of loss recognized in other comprehensive income (before taxes)		-				1,874				-				1,874
Net impairment losses recognized in earnings			-				(4,558	)			-				(4,836	)
Derivative credit valuation adjustment			(1,980	)			38				(2,011	)			70
Other			1,210				982				2,125				1,916
Total non-interest income			4,416				1,732				10,067				7,053
NON-INTEREST EXPENSE
Salaries and employee benefits			14,361				13,216				27,220				25,179
Occupancy expense			2,895				2,782				6,435				5,917
Equipment expense			1,750				1,685				3,486				3,223
Data processing expense			1,101				1,052				2,187				2,062
Amortization of intangible assets			921				1,178				1,842				2,355
Goodwill impairment			89,706				-				89,706				-
Insurance expense			2,020				3,330				3,527				4,773
Professional fees			459				507				1,043				885
Advertising expense			532				871				1,112				1,416
Real estate owned expense, net			94				93				310				273
Other			3,847				2,936				6,894				5,384
Total non-interest expense			117,686				27,650				143,762				51,467
LOSS BEFORE INCOME TAXES			(99,068	)			(9,084	)			(101,470	)			(9,741	)
INCOME TAX BENEFIT			(17,898	)			(4,450	)			(19,538	)			(5,492	)
NET LOSS			(81,170	)			(4,634	)			(81,932	)			(4,249	)
Preferred stock dividends and discount accretion			-				4,146				-				5,351
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS	$		(81,170	)	$		(8,780	)	$		(81,932	)	$		(9,600	)
Basic loss per share	$		(3.46	)	$		(0.38	)	$		(3.50	)	$		(0.42	)
Diluted loss per share	$		(3.46	)	$		(0.38	)	$		(3.50	)	$		(0.42	)
Weighted average shares – basic		23,431,305			23,103,975				23,398,538				23,073,683
Weighted average shares – diluted		23,431,305			23,103,975				23,398,538				23,073,683

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SUN BANCORP, INC. AND SUBSIDIARIES
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in thousands)
	2010			2010			2009			2009			2009
	Q2			Q1			Q4			Q3			Q2
Balance sheet at quarter end:
Loans:
Commercial and industrial	$	2,289,148		$	2,238,967		$	2,249,365		$	2,234,616		$	2,240,368
Home equity		252,425			257,368			258,592			261,206			265,407
Second mortgage		61,941			65,857			68,592			71,578			73,856
Residential real estate		79,034			71,452			75,322			72,292			79,627
Other		62,956			63,924			65,776			70,072			74,714
Total gross loans		2,745,504			2,697,568			2,717,647			2,709,764			2,733,972
Allowance for loan losses		(73,752	)		(63,292	)		(59,953	)		(46,067	)		(44,316	)
Net loans		2,671,752			2,634,276			2,657,694			2,663,697			2,689,656
Goodwill		38,188			127,894			127,894			127,894			127,894
Intangible assets, net		12,474			13,395			14,316			15,237			16,414
Total assets		3,512,310			3,531,998			3,578,905			3,545,639			3,561,110
Total deposits		2,961,816			2,924,815			2,909,268			2,932,880			2,875,502
Federal funds purchased		37,000			25,000			89,000			6,000			87,500
Securities sold under agreements to repurchase - customers		17,156			15,767			18,677			21,018			17,398
Advances from FHLBNY		4,613			14,916			15,215			15,512			15,805
Securities sold under agreements to repurchase - FHLBNY		15,000			15,000			15,000			15,000			15,000
Obligations under capital lease		8,217			8,260			8,301			8,343			8,383
Junior subordinated debentures		92,786			92,786			92,786			92,786			92,786
Total shareholders' equity		273,161			356,129			356,593			362,457			360,660
Quarterly average balance sheet:
Loans:
Commercial and industrial	$	2,262,656		$	2,241,443		$	2,238,579		$	2,247,234		$	2,236,745
Home equity		256,697			258,359			260,382			263,494			268,276
Second mortgage		64,051			67,435			69,844			72,830			75,967
Residential real estate		74,427			73,333			75,890			76,626			75,812
Other		62,249			63,804			66,698			70,790			75,133
Total gross loans		2,720,080			2,704,374			2,711,393			2,730,974			2,731,933
Securities and other interest-earning assets		450,947			459,309			433,706			486,274			491,348
Total interest-earning assets		3,171,027			3,163,683			3,145,099			3,217,248			3,223,281
Total assets		3,554,630			3,554,244			3,590,339			3,593,037			3,611,679
Non-interest-bearing demand deposits		471,033			440,860			480,080			476,478			431,836
Total deposits		2,957,970			2,919,477			2,886,322			2,946,281			2,975,358
Total interest-bearing liabilities		2,640,155			2,672,746			2,652,540			2,663,226			2,705,069
Total shareholders' equity		358,300			360,475			364,530			365,440			370,196
Capital and credit quality measures:
Total capital (to risk-weighted assets)(1):
Sun Bancorp, Inc.		11.08	%		11.49	%		11.38	%		11.48	%		11.62	%
Sun National Bank		10.63	%		10.99	%		10.87	%		10.99	%		11.15	%
Tier 1 capital (to risk-weighted assets)(1):
Sun Bancorp, Inc.		9.81	%		10.23	%		10.12	%		10.23	%		10.37	%
Sun National Bank		9.37	%		9.73	%		9.61	%		9.74	%		9.90	%
Leverage ratio(1):
Sun Bancorp, Inc.		8.60	%		9.21	%		9.08	%		9.21	%		9.29	%
Sun National Bank		8.20	%		8.80	%		8.58	%		8.78	%		8.88	%
Average equity to average assets		10.08	%		10.14	%		10.15	%		10.17	%		10.25	%
Allowance for loan losses to total gross loans		2.69	%		2.35	%		2.21	%		1.70	%		1.62	%
Non-performing assets to total gross loans and real estate owned		4.62	%		3.32	%		3.86	%		3.46	%		2.70	%
Allowance for loan losses to non-performing loans		59.87	%		73.53	%		62.56	%		54.58	%		69.82	%
Other data:
Net charge-offs	$	(3,518	)	$	(6,261	)	$	(5,593	)	$	(14,486	)	$	(2,040	)
Non-performing assets:
Non-accrual loans		120,685			78,403			87,882			80,333			55,801
Loans past due 90 days and accruing		2,500			7,678			7,958			4,067			7,675
Real estate owned, net		3,828			3,688			9,527			9,667			10,620
Total non-performing assets		127,013			89,769			105,367			94,067			74,096
Troubled debt restructuring, performing	$	19,161		$	19,353		$	-		$	-		$	-
(1) June 30, 2010 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 per share amounts)
	2010			2010			2009			2009			2009
	Q2			Q1			Q4			Q3			Q2
Profitability for the quarter:
Tax-equivalent interest income	$	37,349		$	37,347		$	38,425		$	38,413		$	38,276
Interest expense		8,690			9,184			9,799			11,426			14,017
Tax-equivalent net interest income		28,659			28,163			28,626			26,987			24,259
Tax-equivalent adjustment		479			540			558			521			475
Provision for loan losses		13,978			9,600			19,479			16,237			6,950
Non-interest income excluding net impairment losses on available for sale securities		4,416			5,651			5,892			6,404			6,290
Net impairment losses on available for sale securities		-			-			(351	)		(1,928	)		(4,558	)
Non-interest expense excluding amortization of intangible assets and goodwill impairment		27,060			25,155			24,812			25,690			26,472
Amortization of intangible assets and goodwill impairment		90,627			921			921			1,177			1,178
Loss before income taxes		(99,068	)		(2,402	)		(11,603	)		(12,162	)		(9,084	)
Income tax benefit		(17,898	)		(1,640	)		(5,263	)		(5,620	)		(4,450	)
Net loss		(81,170	)		(762	)		(6,340	)		(6,542	)		(4,634	)
Net loss available to common shareholders	$	(81,170	)	$	(762	)	$	(6,340	)	$	(6,542	)	$	(8,780	)
Financial ratios:
Return on average assets(1)		(9.13)	%		(0.09)	%		(0.71)	%		(0.73)	%		(0.51)	%
Return on average equity(1)		(90.62)	%		(0.85)	%		(6.96)	%		(7.16)	%		(5.01)	%
Return on average tangible equity(1),(2)		(148.70)	%		(1.39)	%		(11.44)	%		(11.81)	%		(8.23)	%
Net interest margin(1)		3.62	%		3.56	%		3.64	%		3.36	%		3.01	%
Efficiency ratio		361.04	%		78.37	%		76.57	%		86.83	%		108.36	%
Efficiency ratio, excluding non-operating income and non-operating expense		85.84	%		78.37	%		75.77	%		81.74	%		91.94	%
Per share data:
Loss per common share:
Basic	$	(3.46	)	$	(0.03	)	$	(0.27	)	$	(0.28	)	$	(0.38	)
Diluted	$	(3.46	)	$	(0.03	)	$	(0.27	)	$	(0.28	)	$	(0.38	)
Book value	$	11.63		$	15.22		$	15.29		$	15.63		$	15.59
Tangible book value	$	9.48		$	9.18		$	9.19		$	9.46		$	9.35
Average basic shares	23,431,305			23,365,406			23,223,463			23,162,992			23,103,975
Average diluted shares	23,431,305			23,365,406			23,223,463			23,162,992			23,103,975
Operating non-interest income:
Service charges on deposit accounts	$	3,044		$	2,944		$	3,150		$	3,150		$	3,096
Other service charges		99			79			85			85			79
Gain on sale of loans		712			603			603			711			693
Gain on derivative instruments		-			-			50			-			85
Investment products income		792			603			497			894			756
BOLI income		539			538			600			575			561
Derivative credit valuation adjustment		(1,980	)		(31	)		(78)			(45	)		38
Other		1,210			915			985			1,034			982
Total operating non-interest income		4,416			5,651			5,892			6,404			6,290
Non-operating loss(3):
Net impairment losses on available for sale securities recognized in earnings		-			-			(351	)		(1,928	)		(4,558	)
Total non-operating losses		-			-			(351	)		(1,928	)		(4,558	)
Total non-interest income	$	4,416		$	5,651		$	5,541		$	4,476		$	1,732
Operating non-interest expense:
Salaries and employee benefits	$	14,361		$	12,859		$	12,440		$	14,154		$	13,216
Occupancy expense		2,895			3,540			2,911			2,689			2,782
Equipment expense		1,750			1,736			1,732			1,619			1,685
Data processing expense		1,101			1,086			1,021			980			1,052
Amortization of intangible assets		921			921			921			1,177			1,178
Insurance expense		2,020			1,507			1,512			1,519			3,330
Professional fees		459			584			713			595			507
Advertising expense		532			580			786			251			871
Real estate owned expense, net		94			216			28			854			93
Other		3,847			3,047			3,669			3,029			2,936
Total operating non-interest expense		27,980			26,076			25,733			26,867			27,650
Non-operating expense:
Goodwill impairment		89,706			-			-			-			-
Total non-operating expense		89,706			-			-			-			-
Total non-interest expense	$	117,686		$	26,076		$	25,733		$	26,867		$	27,650
(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.

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SUN BANCORP, INC. AND SUBSIDIARIES
AVERAGE BALANCE SHEETS (Unaudited)
(Dollars in thousands)
	For the Three Months Ended June 30,
	2010							2009
	Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Cost			Balance		Expense		Cost
Interest-earning assets:
Loans receivable(1),(2):
Commercial and industrial	$	2,262,656	$	26,770		4.73	%	$	2,236,745	$	26,107		4.67	%
Home equity		256,697		3,016		4.70			268,276		3,332		4.97
Second mortgage		64,051		1,025		6.40			75,967		1,226		6.46
Residential real estate		74,427		1,057		5.68			75,812		1,095		5.78
Other		62,249		1,058		6.80			75,133		1,236		6.58
Total loans receivable		2,720,080		32,926		4.84			2,731,933		32,996		4.83
Investment securities(3)		424,617		4,410		4.15			445,456		5,258		4.72
Interest-earning bank balances		26,330		13		0.20			45,892		22		0.19
Total interest-earning assets		3,171,027		37,349		4.71			3,223,281		38,276		4.75
Cash and due from banks		45,153							48,777
Bank properties and equipment, net		52,715							48,343
Goodwill and intangible assets, net		139,961							145,033
Other assets		145,774							146,245
Total non-interest-earning assets		383,603							388,398
Total assets	$	3,554,630						$	3,611,679
Interest-bearing liabilities:
Interest-bearing deposit accounts:
Interest-bearing demand deposits	$	1,276,627		2,625		0.82	%	$	1,019,000		2,565		1.01	%
Savings deposits		304,273		572		0.75			295,010		725		0.98
Time deposits		906,037		4,039		1.78			1,229,512		9,115		2.97
Total interest-bearing deposit accounts		2,486,937		7,236		1.16			2,543,522		12,405		1.95
Short-term borrowings:
Federal funds purchased		14,423		21		0.58			16,632		20		0.48
Securities sold under agreements to repurchase - customers		15,307		8		0.21			15,996		10		0.25
Long-term borrowings:
FHLBNY advances(4)		22,464		265		4.72			30,903		355		4.60
Obligations under capital lease		8,238		137		6.65			5,230		94		7.19
Junior subordinated debentures		92,786		1,023		4.41			92,786		1,133		4.88
Total borrowings		153,218		1,454		3.80			161,547		1,612		3.99
Total interest-bearing liabilities		2,640,155		8,690		1.32			2,705,069		14,017		2.07
Non-interest-bearing demand deposits		471,033							431,836
Other liabilities		85,142							104,578
Total non-interest bearing liabilities		556,175							536,414
Total liabilities		3,196,330							3,241,483
Shareholders' equity		358,300							370,196
Total liabilities and shareholders' equity	$	3,554,630						$	3,611,679
Net interest income			$	28,659						$	24,259
Interest rate spread(5)						3.39	%						2.68	%
Net interest margin(6)						3.62	%						3.01	%
Ratio of average interest-earning assets to average interest-bearing liabilities						120.11	%						119.16	%
(1)  Average balances include non-accrual loans.
(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 three months ended June 30, 2010 and 2009 was $479,000 and $475,000, 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 Six Months Ended June 30
	2010							2009
	Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Cost			Balance		Expense		Cost
Interest-earning assets:
Loans receivable (1),(2):
Commercial and industrial	$	2,252,108	$	52,936		4.70	%	$	2,232,902	$	51,184		4.58	%
Home equity		257,523		6,048		4.70			268,597		6,832		5.09
Second mortgage		65,734		2,088		6.35			78,894		2,533		6.42
Residential real estate		73,883		2,076		5.62			73,354		2,165		5.90
Other		63,022		2,164		6.87			77,217		2,474		6.41
Total loans receivable		2,712,270		65,312		4.82			2,730,964		65,188		4.77
Investment securities (3)		437,085		9,367		4.29			456,118		10,924		4.79
Interest-earning bank balances		18,020		17		0.19			52,927		58		0.22
Federal funds sold		-		-		-			189		-		-
Total interest-earning assets		3,167,375		74,696		4.72			3,240,198		76,170		4.70
Cash and due from banks		45,173							48,955
Bank properties and equipment, net		52,897							48,406
Goodwill and intangible assets, net		140,905							145,618
Other assets		148,088							144,851
Total non-interest-earning assets		387,063							387,830
Total assets	$	3,554,438						$	3,628,028
Interest-bearing liabilities:
Interest-bearing deposit accounts:
Interest-bearing demand deposits	$	1,268,769		5,406		0.85	%	$	1,001,284		5,311		1.06	%
Savings deposits		302,796		1,223		0.81			296,293		1,571		1.06
Time deposits		911,235		8,234		1.81			1,243,804		19,453		3.13
Total interest-bearing deposit accounts		2,482,800		14,863		1.20			2,541,381		26,335		2.07
Short-term borrowings:
Federal funds purchased		30,898		84		0.54			10,133		25		0.49
Securities sold under agreements to repurchase - customers		15,396		13		0.17			16,302		20		0.25
Long-term borrowings:
FHLBNY advances (4)		26,221		608		4.64			33,922		729		4.30
Obligations under capital lease		8,260		275		6.66			5,204		189		7.26
Junior subordinated debentures		92,786		2,031		4.38			92,786		2,319		5.00
Total borrowings		173,561		3,011		3.47			158,347		3,282		4.15
Total interest-bearing liabilities		2,656,361		17,874		1.35			2,699,728		29,617		2.19
Non-interest-bearing demand deposits		456,030							414,632
Other liabilities		82,666							106,257
Total non-interest bearing liabilities		538,696							520,889
Total liabilities		3,195,057							3,220,617
Shareholders' equity		359,381							407,411
Total liabilities and shareholders' equity	$	3,554,438						$	3,628,028
Net interest income			$	56,822						$	46,553
Interest rate spread (5)						3.37	%						2.51	%
Net interest margin (6)						3.59	%						2.87	%
Ratio of average interest-earning assets to average interest-bearing liabilities						119.24	%						120.02	%
(1)  Average balances include non-accrual loans.
(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 six months ended June 30, 2010 and 2009 was $1.0 million and $930,000, 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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