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

News Release

For Immediate Release

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

Sun Bancorp, Inc. Reports Third Quarter 2010 Results

VINELAND, NJ – October 28, 2010 – Sun Bancorp, Inc. (NASDAQ: SNBC) reported today a net loss available to common shareholders of $75.3 million, or a loss of $3.14 per diluted share, for the third quarter ended September 30, 2010, compared to a net loss available to common shareholders of $6.5 million, or a loss of $0.28 per diluted share, for the third quarter ended September 30, 2009. As previously reported during the quarter, the Company completed an equity investment of $106.7 million in gross proceeds from private equity funds controlled by WL Ross & Co. LLC, the Company’s founding Brown family shareholders, and other institu tional and accredited investors.

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

●   Loan loss provision of $42.4 million as compared to $16.2 million for the comparable prior year period.

●   Income tax provision of $28.8 million which included a deferred tax valuation allowance of $49.9 million against its entire net deferred tax asset.

●   $7.5 million fair value credit adjustment on customer derivatives.

●   $950,000 other-than-temporary impairment (“OTTI”) charge as compared to $1.9 million for the comparable prior year period.

●   On September 22, 2010, the Company completed the sale of 4,672,750 shares of the Company’s $1.00 par value common stock and 88,009 shares of the Company’s $1.00 par value Series B mandatorily convertible cumulative non-voting perpetual preferred stock, with a liquidation preference of $1,000 per share, for aggregate consideration of $106.7 million in cash.

For the nine months ended September 30, 2010, the Company reported a net loss available to common shareholders of $157.2 million, or a loss of $6.66 per diluted share, as compared to a net loss available to common shareholders of $16.1 million, or a loss of $0.70 per diluted share, for the comparable prior year period. The nine months ended September 30, 2010 included loan loss provision charges of $66.0 million and a goodwill impairment charge of $89.7 million.  The 2009 comparable period included total charges of $18.4 million 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.

“The financial results of this quarter reflect the continuing softening in the economy, especially in the commercial real estate and development sectors,” said Thomas X. Geisel, president and chief executive officer. “As a result, borrowers cash flows continue to be impacted and collateral values have yet to consistently stabilize.  With no immediate view to an economic recovery, we have been appropriately prudent in writing down a substantial portion of the credits included here to collateral dependant status.”

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 “We have made substantial progress strengthening our balance sheet and addressing problem assets over the past several quarters. The third quarter was no exception as we provided over $42 million for loan losses. In addition this quarter we took a valuation allowance against our deferred tax asset of $49.9 million, however with each dollar of future earning this allowance is reversed dollar for dollar back into earnings and capital,” remarked Geisel. “We are fortunate to have a strong underlying business model and be well-capitalized, which allows us the opportunity to evaluate and execute on various strategies to strengthen the balance sheet, support our customers and look to future growth as we persevere through the current economic environment.”

Discussion of Results:

Balance Sheet

●   Total assets were $3.60 billion at September 30, 2010, as compared to $3.51 billion at June 30, 2010 and $3.58 billion at December 31, 2009.

●   Total loans before allowance for loan losses were $2.68 billion at September 30, 2010 as compared to $2.75 billion at June 30, 2010 and $2.72 billion at December 31, 2009. Compared to linked quarter, commercial loans decreased by $53.4 million, of which $38.3 million related to charge off activity. The remaining decrease was due to reduced loan demand and a decrease in the home equity loan portfolio of $11.8 million.

●   Total deposits at September 30, 2010 equaled $3.05 billion as compared to $2.96 billion at June 30, 2010 and $2.91 billion at December 31, 2009. Interest-bearing deposits increased $83.2 million, or 3.4% over the linked quarter as interest-bearing demand deposits and certificates of deposit increased $61.2 million, or 4.8%, and $35.2 million, or 3.9%, respectively, offset by a decrease in savings deposits of $13.2 million, or 4.4%. The increases in interest-bearing demand deposits and certificates of deposit were attributable to increases in retail deposits and public funds of $21.4 million, or 1.2%, and $47.5 million, or 12.6%, over the linked quarter. In addition, non-interest-bearing demand deposits increased by $6.9 million, or 1.4%, to $503.3 million at September 30, 2010.

●   During the third quarter of 2010, the Company established a valuation allowance of $49.9 million against its entire net deferred tax asset after concluding that it was more likely than not that it would not be realized. Accordingly, this valuation allowance was recorded as income tax expense during the quarter and offset a $21 million income tax benefit recorded during the quarter that related primarily to taxes recoverable from loss carry back claims. This resulted in a net income tax provision of $28.8 million for the quarter ended September 30, 2010.

Net Interest Income and Margin

●   On a tax equivalent basis, net interest income, decreased $374,000 over the linked quarter to $28.3 million primarily due to lower yields earned on loans and investment securities. The net interest margin was 3.47% for the third quarter, as compared to the linked quarter of 3.62% and 3.36% for the comparable prior year quarter. 

●   The yield on earning assets decreased 18 basis points over the linked quarter from 4.71% to 4.53% at September 30, 2010 due to lower yields on loans (decrease of 8 basis points to 4.76%) and investments (decrease of 30 basis points to 3.85%). Adjusted for non-accrual interest reversals during the period, the Company’s net interest margin was 3.61% for the third quarter 2010, as compared to adjusted 3.74% for the linked quarter.

●   The yield on interest-bearing liabilities decreased 3 basis points over the linked quarter from 1.32% to 1.29%.The cost of interest-bearing deposits of 1.14% for the third quarter continued to trend downward in comparison to prior periods as it decreased 2 basis points from 1.16% for the linked quarter and 45 basis points from 1.59% for the comparable prior year quarter.  The interest rate spread was 3.24% for the third quarter 2010, as compared to 3.39% for the linked quarter and 3.06% for the comparable prior year quarter.

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Non-Interest Income

●   Non-interest income decreased $6.8 million over the linked quarter and $6.8 million over the comparable prior year quarter resulting in a loss of $2.4 million. The decrease and loss over the linked quarter was primarily attributable to a $7.5 million fair value credit adjustment on the Company’s derivative portfolio, resulting from credit deterioration of the Company’s commercial loan counterparties.

●   The Company recognized a pre-tax OTTI charge during the third quarter of $950,000 related to one dividend deferring single issuer trust preferred security.

●   Gain on sale of loans increased over the linked quarter $209,000 to $921,000 due to higher mortgage loan production and sales, offset by a decrease in service charges on deposits of $175,000 attributable to lower nonsufficient funds and overdraft fees as a result of implementing revised Regulation E requirements.

Non-Interest Expense

●   The Company incurred $29.3 million of operating non-interest expense, an increase of $1.4 million, or 4.9%, over the linked quarter and $2.5 million, or 9.2%, over the comparable prior year quarter. Third quarter results included expenses of $1.1 million of share based compensation expense related to the granting of options and restricted stock to employees and directors and $1.3 million of retirement and resignation expenses for certain board members.

Asset Quality

●   Provision expense for the third quarter was $42.4 million, an increase of $28.5 million, or 203.5%, over the linked quarter, and an increase of $26.2 million, or 161.3%, over the comparable prior year quarter. The allowance for loan losses was $74.6 million at September 30, 2010, or 2.78% of outstanding loans, as compared to the allowance for loan losses to outstanding loans of 2.69% at June 30, 2010 and 2.21% at December 31, 2009.  Net charge-offs during the third quarter were $41.6 million, or 1.52% of average loans, as compared to $3.5 million, or 0.13% of average loans for the linked quarter and $14.5 million, or 0.53% of average loans outstanding for the comparable prior year quarter. The higher provision expense was attributable to the migration of loans to higher ri sk categories and a higher level of charge-offs on commercial real estate collateral deficiencies due to continued weakness in the commercial real estate market. This quarter also includes a $9 million charge-off for a fraud related to one commercial relationship.

●   Total non-performing assets were $208.8 million, or 7.77% of total loans and real estate owned, as compared to $127.0 million at June 30, 2010, or 4.62% 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 primarily the result of a $72.1 million increase in non-accrual loans which was a result of significant increases in the number of relationships placed on non-accrual, including eight commercial relationships totaling $46.7 million in the aggregate. The allowance for loan losses to non-performing loans was 36.46% at September 30, 2010, as compared to 59.87% at June 30, 2010 and 62.56% at December 31, 2009. As of September 30, 2010 approximately $140 million in non-performing loans are designated as collateral dependent and have been fully charged-down to current appraised values less cost of liquidation.

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 Capital

●   Stockholders’ equity totaled $303.0 million at September 30, 2010 compared to $356.6 million at December 31, 2009.  On September 22, 2010, the Company completed the sale of 4,672,750 shares of the Company’s $1.00 par value common stock and 88,009 shares of the Company’s $1.00 par value Series B mandatorily convertible cumulative non-voting perpetual preferred stock, with a liquidation preference of $1,000 per share, for aggregate consideration of $106.7 million in cash. Each share of the Series B preferred stock will convert into shares of common stock, which will qualify as Tier 1 capital, at a conversion price of $4.00 following shareholder approval.  The Company’s tangible equity to tangible assets was 7.13% at September 30, 2010, as compared to 6.43% at June 30, 2010 and 6.24% at December 31, 2009.  At September 30, 2010, the Company’s total risk-based capital ratio, Tier 1 capital ratio and the leverage capital ratio were approximately 12.71%. 8.03%, and 6.68%, respectively.  At September 30, 2010, Sun National Bank’s total risk-based capital ratio, Tier 1 capital ratio and the leverage capital ratio were approximately 12.04%, 10.77%, and 8.91%, respectively. 

 The Company will hold its regularly scheduled conference call on Friday, October 29, 2010, at 11:00 a.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. (Nasdaq: SNBC) is a $3.6 billion asset bank holding company headquartered in Vineland, New Jersey. Its primary subsidiary is Sun National Bank, serving customers through more than 60 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 September 30, 2010 and June 30, 2010 is calculated by adding $1.2 million and $966,000, respectively, of non-accrual interest reversals, annualized, to interest income of $28.3 million and $28.7 million, respectively, and dividing the balance by average interest-earning assets of $3.3 billion and $3.2 billion, respectively.

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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 Nine Months Ended
	September 30,							September 30,
		2010			2009			2010			2009
Profitability for the period:
Net interest income		$	27,886		$	26,466		$	83,689		$	72,089
Provision for loan losses			42,429			16,237			66,007			27,187
Non-interest (loss) income			(2,352	)		4,476			7,715			11,529
Non-interest expense			29,341			26,867			173,103			78,334
Loss before income taxes			(46,236	)		(12,162	)		(147,706	)		(21,903	)
Net loss			(74,993	)		(6,542	)		(156,925	)		(10,791	)
Net loss available to common shareholders		$	(75,267	)	$	(6,542	)	$	(157,199	)	$	(16,142	)
Financial ratios:
Return on average assets(1)			(8.38)	%		(0.73)	%		(5.87)	%		(0.40)	%
Return on average equity(1)			(104.19)	%		(7.16)	%		(62.40)	%		(3.66)	%
Return on average tangible equity(1),(2)			(126.27)	%		(11.81)	%		(93.03)	%		(5.80)	%
Net interest margin(1)			3.47	%		3.36	%		3.55	%		3.03	%
Efficiency ratio			114.91	%		86.83	%		189.38	%		93.68	%
Efficiency ratio, excluding non-operating income and non-operating expense(3)			110.79	%		81.74	%		187.43	%		86.67	%
Loss per common share:
Basic		$	(3.14	)	$	(0.28	)	$	(6.66	)	$	(0.70	)
Diluted		$	(3.14	)	$	(0.28	)	$	(6.66	)	$	(0.70	)
Average equity to average assets			8.05	%		10.17	%		9.41	%		10.88	%

	September 30,						December 31,
	2010			2009			2009
At period-end:
Total assets	$	3,603,637		$	3,545,639		$	3,578,905
Total deposits		3,051,894			2,932,880			2,909,268
Loans receivable, net of allowance for loan losses		2,608,199			2,663,697			2,657,694
Investments		479,055			428,696			457,192
Borrowings		43,179			65,873			146,193
Junior subordinated debentures		92,786			92,786			92,786
Shareholders' equity		303,038			362,457			356,593
Credit quality and capital ratios:
Allowance for loan losses to gross loans		2.78	%		1.70	%		2.21	%
Non-performing assets to gross loans and real estate owned		7.77	%		3.46	%		3.86	%
Allowance for loan losses to non-performing loans		36.46	%		54.58	%		62.56	%
Total capital (to risk-weighted assets):
Sun Bancorp, Inc.		12.71	%		11.48	%		11.38	%
Sun National Bank		12.04	%		10.99	%		10.87	%
Tier 1 capital (to risk-weighted assets):
Sun Bancorp, Inc.		8.03	%		10.23	%		10.12	%
Sun National Bank		10.77	%		9.74	%		9.61	%
Leverage Ratio:
Sun Bancorp, Inc.		6.68	%		9.21	%		9.08	%
Sun National Bank		8.91	%		8.78	%		8.58	%
Book value per common share	$	7.62		$	15.63		$	15.29
Tangible book value per common share	$	5.86		$	9.46		$	9.19
(1) Amounts for the nine 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 nine months ended September 30, 2010 excludes a goodwill impairment charge of $89.7 million. Non-interest income for the three and nine months ended September 30, 2010 exclude a net impairment loss on available for sale securities of $950,000, respectively. Non-interest income for the three and nine months ended September 30, 2009 exclude a net impairment loss on available for sale securities of $1.9 million and $6.8 million, respectively.

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SUN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
(Dollars in thousands, except par value amounts)
	September 30, 2010			December 31, 2009
ASSETS
Cash and due from banks	$	47,207		$	53,857
Interest-earning bank balances		158,058			5,263
Cash and cash equivalents		205,265			59,120
Investment securities available for sale (amortized cost of $458,808 and $435,267 at September 30, 2010 and December 31, 2009, respectively)		460,246			434,738
Investment securities held to maturity (estimated fair value of $4,008 and $7,121 at September 30, 2010 and December 31, 2009, respectively)		3,883			6,955
Loans receivable (net of allowance for loan losses of $74,579 and $59,953 at September 30, 2010 and December 31, 2009, respectively)		2,608,199			2,657,694
Restricted equity investments		14,926			15,499
Bank properties and equipment, net		53,331			53,246
Real estate owned		4,272			9,527
Accrued interest receivable		10,794			12,235
Goodwill		38,188			127,894
Intangible assets, net		11,552			14,316
Deferred tax assets, net		-			20,721
Bank owned life insurance (BOLI)		74,204			77,753
Other assets		118,777			89,207
Total assets	$	3,603,637		$	3,578,905
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits	$	3,051,894		$	2,909,268
Federal funds purchased		-			89,000
Securities sold under agreements to repurchase – customers		15,702			18,677
Advances from the Federal Home Loan Bank of New York (FHLBNY)		4,308			15,215
Securities sold under agreements to repurchase – FHLBNY		15,000			15,000
Obligations under capital lease		8,169			8,301
Junior subordinated debentures		92,786			92,786
Deferred tax liabilities, net		293			-
Other liabilities		112,447			74,065
Total liabilities		3,300,599			3,222,312
Shareholders’ equity:
Preferred stock, $1 par value, 1,000,000 shares authorized; 88,009 shares of Series B convertible perpetual stock; liquidation value $1,000 per share, issued and outstanding at September 30, 2010		88,009			-
Common stock, $1 par value, 50,000,000 shares authorized; 30,333,183 shares issued and 28,226,460 shares outstanding at September 30, 2010; 25,435,994 shares issued and 23,329,271 shares outstanding at December 31, 2009		30,333			25,436
Additional paid-in capital		371,450			362,189
Retained deficit		(161,522	)		(4,597	)
Accumulated other comprehensive gain (loss)		1,144			(149	)
Deferred compensation plan trust		(214	)		(124	)
Treasury stock at cost, 2,106,723 shares at  September 30, 2010 and December 31, 2009		(26,162	)		(26,162	)
Total shareholders’ equity		303,038			356,593
Total liabilities and shareholders’ equity	$	3,603,637		$	3,578,905

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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  September 30,								For the Nine Months Ended September 30,
	2010				2009				2010				2009
INTEREST INCOME
Interest and fees on loans	$		32,664		$		33,299		$		97,976		$		98,487
Interest on taxable investment securities			2,963				3,405				9,002				11,341
Interest on non-taxable investment securities			741				969				2,634				2,695
Dividends on restricted equity investments			204				219				637				609
Total interest income			36,572				37,892				110,249				113,132
INTEREST EXPENSE
Interest on deposits			7,260				9,797				22,123				36,132
Interest on funds borrowed			372				548				1,352				1,511
Interest on junior subordinated debentures			1,054				1,081				3,085				3,400
Total interest expense			8,686				11,426				26,560				41,043
Net interest income			27,886				26,466				83,689				72,089
PROVISION FOR LOAN LOSSES			42,429				16,237				66,007				27,187
Net interest (loss) income after provision for loan losses			(14,543	)			10,229				17,682				44,902
NON-INTEREST INCOME
Service charges on deposit accounts			2,869				3,150				8,857				9,290
Other service charges			92				85				270				246
Gain on sale of loans			921				711				2,236				1,749
Gain on derivative instruments			-				-				-				212
Investment products income			708				894				2,103				2,172
BOLI income			545				575				1,622				1,649
Net impairment losses on available for sale securities:
Total impairment losses		(4,005)				(1,928)				(4,005)				(6,764)
Portion of loss recognized in other comprehensive income (before taxes)		3,055				-				3,055				-
Net impairment losses recognized in earnings			(950	)			(1,928	)			(950	)			(6,764	)
Derivative credit valuation adjustment			(7,498	)			(45	)			(9,509	)			25
Other			961				1,034				3,086				2,950
Total non-interest (loss) income			(2,352	)			4,476				7,715				11,529
NON-INTEREST EXPENSE
Salaries and employee benefits			15,079				14,154				42,299				39,333
Occupancy expense			3,030				2,689				9,465				8,606
Equipment expense			1,663				1,619				5,149				4,842
Data processing expense			1,039				980				3,226				3,042
Amortization of intangible assets			922				1,177				2,764				3,532
Goodwill impairment			-				-				89,706				-
Insurance expense			2,105				1,519				5,632				6,292
Professional fees			461				595				1,504				1,480
Advertising expense			833				251				1,945				1,667
Real estate owned expense, net			93				854				403				1,127
Other			4,116				3,029				11,010				8,413
Total non-interest expense			29,341				26,867				173,103				78,334
LOSS BEFORE INCOME TAXES			(46,236	)			(12,162	)			(147,706	)			(21,903	)
INCOME TAX EXPENSE (BENEFIT)			28,757				(5,620	)			9,219				(11,112	)
NET LOSS			(74,993	)			(6,542	)			(156,925	)			(10,791	)
Preferred stock dividends and discount accretion			274				-				274				5,351
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS	$		(75,267	)	$		(6,542	)	$		(157,199	)	$		(16,142	)
Basic loss per share	$		(3.14	)	$		(0.28	)	$		(6.66	)	$		(0.70	)
Diluted loss per share	$		(3.14	)	$		(0.28	)	$		(6.66	)	$		(0.70	)
Weighted average shares – basic		23,960,691			23,162,992				23,587,981				23,104,419
Weighted average shares – diluted		23,960,691			23,162,992				23,587,981				23,104,419

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SUN BANCORP, INC. AND SUBSIDIARIES
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in thousands)
	2010			2010			2010			2009			2009
	Q3			Q2			Q1			Q4			Q3
Balance sheet at quarter end:
Cash and cash equivalents	$	205,265		$	52,810		$	52,570		$	59,120		$	60,254
Investment securities		479,055			428,362			430,104			457,192			428,696
Loans:
Commercial and industrial		2,235,715			2,289,148			2,238,967			2,249,365			2,234,616
Home equity lines of credit		244,274			252,425			257,368			258,592			261,206
Home equity term loans		58,305			61,941			65,857			68,592			71,578
Residential real estate		85,554			79,034			71,452			75,322			72,292
Other		58,930			62,956			63,924			65,776			70,072
Total gross loans		2,682,778			2,745,504			2,697,568			2,717,647			2,709,764
Allowance for loan losses		(74,579	)		(73,752	)		(63,292	)		(59,953	)		(46,067	)
Net loans		2,608,199			2,671,752			2,634,276			2,657,694			2,663,697
Goodwill		38,188			38,188			127,894			127,894			127,894
Intangible assets, net		11,552			12,474			13,395			14,316			15,237
Total assets		3,603,637			3,512,310			3,531,998			3,578,905			3,545,639
Total deposits		3,051,894			2,961,816			2,924,815			2,909,268			2,932,880
Federal funds purchased		-			37,000			25,000			89,000			6,000
Securities sold under agreements to repurchase - customers		15,702			17,156			15,767			18,677			21,018
Advances from FHLBNY		4,308			4,613			14,916			15,215			15,512
Securities sold under agreements to repurchase - FHLBNY		15,000			15,000			15,000			15,000			15,000
Obligations under capital lease		8,169			8,217			8,260			8,301			8,343
Junior subordinated debentures		92,786			92,786			92,786			92,786			92,786
Total shareholders' equity		303,038			273,161			356,129			356,593			362,457
Quarterly average balance sheet:
Loans:
Commercial and industrial	$	2,292,274		$	2,262,656		$	2,241,443		$	2,238,579		$	2,247,234
Home equity lines of credit		250,033			256,697			258,359			260,382			263,494
Home equity term loans		60,729			64,051			67,435			69,844			72,830
Residential real estate		82,094			74,427			73,333			75,890			76,626
Other		59,998			62,249			63,804			66,698			70,790
Total gross loans		2,745,128			2,720,080			2,704,374			2,711,393			2,730,974
Securities and other interest-earning assets		518,262			450,947			459,309			433,706			486,274
Total interest-earning assets		3,263,390			3,171,027			3,163,683			3,145,099			3,217,248
Total assets		3,578,296			3,554,630			3,554,244			3,590,339			3,593,037
Non-interest-bearing demand deposits		505,036			471,033			440,860			480,080			476,478
Total deposits		3,043,268			2,957,970			2,919,477			2,886,322			2,946,281
Total interest-bearing liabilities		2,683,915			2,640,155			2,672,746			2,652,540			2,663,226
Total shareholders' equity		287,897			358,300			360,475			364,530			365,440
Capital and credit quality measures:
Total capital (to risk-weighted assets):
Sun Bancorp, Inc.		12.71	%		11.09	%		11.49	%		11.38	%		11.48	%
Sun National Bank		12.04	%		10.64	%		10.99	%		10.87	%		10.99	%
Tier 1 capital (to risk-weighted assets):
Sun Bancorp, Inc.		8.03	%		9.82	%		10.23	%		10.12	%		10.23	%
Sun National Bank		10.77	%		9.37	%		9.73	%		9.61	%		9.74	%
Leverage ratio:
Sun Bancorp, Inc.		6.68	%		8.60	%		9.21	%		9.08	%		9.21	%
Sun National Bank		8.91	%		8.22	%		8.80	%		8.58	%		8.78	%
Average equity to average assets		8.05	%		10.08	%		10.14	%		10.15	%		10.17	%
Allowance for loan losses to total gross loans		2.78	%		2.69	%		2.35	%		2.21	%		1.70	%
Non-performing assets to total gross loans and real estate owned		7.77	%		4.62	%		3.32	%		3.86	%		3.46	%
Allowance for loan losses to non-performing loans		36.46	%		59.87	%		73.53	%		62.56	%		54.58	%
Other data:
Net charge-offs	$	(41,602	)	$	(3,518	)	$	(6,261	)	$	(5,593	)	$	(14,486	)
Non-performing assets:
Non-accrual loans		192,769			120,685			78,403			87,882			80,333
Loans past due 90 days and accruing		11,802			2,500			7,678			7,958			4,067
Real estate owned, net		4,272			3,828			3,688			9,527			9,667
Total non-performing assets		208,843			127,013			89,769			105,367			94,067
Troubled debt restructuring, performing	$	20,396		$	19,161		$	19,353		$	-		$	-

-10-

SUN BANCORP, INC. AND SUBSIDIARIES
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in thousands, except share and per share amounts)
	2010			2010			2010			2009			2009
	Q3			Q2			Q1			Q4			Q3
Profitability for the quarter:
Tax-equivalent interest income	$	36,971		$	37,349		$	37,347		$	38,425		$	38,413
Interest expense		8,686			8,690			9,184			9,799			11,426
Tax-equivalent net interest income		28,285			28,659			28,163			28,626			26,987
Tax-equivalent adjustment		399			479			540			558			521
Provision for loan losses		42,429			13,978			9,600			19,479			16,237
Non-interest (loss) income excluding net impairment losses on available for sale securities		(1,402	)		4,416			5,651			5,892			6,404
Net impairment losses on available for sale securities		(950	)		-			-			(351	)		(1,928	)
Non-interest expense excluding amortization of intangible assets and goodwill impairment		28,419			27,060			25,155			24,812			25,690
Amortization of intangible assets and goodwill impairment		922			90,627			921			921			1,177
Loss before income taxes		(46,236	)		(99,068	)		(2,402	)		(11,603	)		(12,162	)
Income tax expense (benefit)		28,757			(17,898	)		(1,640	)		(5,263	)		(5,620	)
Net loss		(74,993	)		(81,170	)		(762	)		(6,340	)		(6,542	)
Net loss available to common shareholders	$	(75,267	)	$	(81,170	)	$	(762	)	$	(6,340	)	$	(6,542	)
Financial ratios:
Return on average assets(1)		(8.38)	%		(9.13)	%		(0.09)	%		(0.71)	%		(0.73	)%
Return on average equity(1)		(104.19)	%		(90.62)	%		(0.85)	%		(6.96)	%		(7.16	)%
Return on average tangible equity(1),(2)		(126.27)	%		(148.70)	%		(1.39)	%		(11.44)	%		(11.81)	%
Net interest margin(1)		3.47	%		3.62	%		3.56	%		3.64	%		3.36	%
Efficiency ratio		114.91	%		361.04	%		78.37	%		76.57	%		86.83	%
Efficiency ratio, excluding non-operating income and non-operating expense		110.79	%		85.84	%		78.37	%		75.77	%		81.74	%
Per share data:
Loss per common share:
Basic	$	(3.14	)	$	(3.46	)	$	(0.03	)	$	(0.27	)	$	(0.28	)
Diluted	$	(3.14	)	$	(3.46	)	$	(0.03	)	$	(0.27	)	$	(0.28	)
Book value	$	7.62		$	11.63		$	15.22		$	15.29		$	15.63
Tangible book value	$	5.86		$	9.48		$	9.18		$	9.19		$	9.46
Average basic shares	23,960,691			23,431,305			23,365,406			23,223,463			23,162,992
Average diluted shares	23,960,691			23,431,305			23,365,406			23,223,463			23,162,992
Operating non-interest income:
Service charges on deposit accounts	$	2,869		$	3,044		$	2,944		$	3,150		$	3,150
Other service charges		92			99			79			85			85
Gain on sale of loans		921			712			603			603			711
Gain on derivative instruments		-			-			-			50			-
Investment products income		708			792			603			497			894
BOLI income		545			539			538			600			575
Derivative credit valuation adjustment		(7,498	)		(1,980	)		(31	)		(78)			(45	)
Other		961			1,210			915			985			1,034
Total operating non-interest (loss) income		(1,402	)		4,416			5,651			5,892			6,404
Non-operating loss(3):
Net impairment losses on available for sale securities recognized in earnings		(950	)		-			-			(351	)		(1,928	)
Total non-operating losses		(950	)		-			-			(351	)		(1,928	)
Total non-interest (loss) income	$	(2,352	)	$	4,416		$	5,651		$	5,541		$	4,476
Operating non-interest expense:
Salaries and employee benefits	$	15,079		$	14,361		$	12,859		$	12,440		$	14,154
Occupancy expense		3,030			2,895			3,540			2,911			2,689
Equipment expense		1,663			1,750			1,736			1,732			1,619
Data processing expense		1,039			1,101			1,086			1,021			980
Amortization of intangible assets		922			921			921			921			1,177
Insurance expense		2,105			2,020			1,507			1,512			1,519
Professional fees		461			459			584			713			595
Advertising expense		833			532			580			786			251
Real estate owned expense, net		93			94			216			28			854
Other		4,116			3,847			3,047			3,669			3,029
Total operating non-interest expense		29,341			27,980			26,076			25,733			26,867
Non-operating expense:
Goodwill impairment		-			89,706			-			-			-
Total non-operating expense		-			89,706			-			-			-
Total non-interest expense	$	29,341		$	117,686		$	26,076		$	25,733		$	26,867
(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.

-11-

SUN BANCORP, INC. AND SUBSIDIARIES
AVERAGE BALANCE SHEETS (Unaudited)
(Dollars in thousands)
	For the Three Months Ended September 30, 2010						For the Three Months Ended September 30, 2009
	Average		Income/		Yield/		Average		Income/		Yield/
	Balance		Expense		Cost		Balance		Expense		Cost
Interest-earning assets:
Loans receivable (1),(2):
Commercial and industrial	$	2,292,274	$	26,620	4.65	%	$	2,247,234	$	26,590	4.73	%
Home equity lines of credit		250,033		2,921	4.67			263,494		3,248	4.93
Home equity term loans		60,729		932	6.14			72,830		1,182	6.49
Residential real estate		82,094		1,160	5.65			76,626		1,099	5.74
Other		59,998		1,031	6.87			70,790		1,180	6.67
Total loans receivable		2,745,128		32,664	4.76			2,730,974		33,299	4.88
Investment securities (3)		443,203		4,261	3.85			439,661		5,091	4.63
Interest-earning deposits with banks		75,059		46	0.25			46,613		23	0.20
Total interest-earning assets		3,263,390		36,971	4.53			3,217,248		38,413	4.78
Non-interest-earning assets:
Cash and due from banks		51,660						46,724
Bank properties and equipment, net		52,962						52,058
Goodwill and intangible assets, net		50,324						143,868
Other assets		159,960						133,139
Total non-interest-earning assets		314,906						375,789
Total assets	$	3,578,296					$	3,593,037
Interest-bearing liabilities:
Interest-bearing deposit accounts:
Interest-bearing demand deposits	$	1,325,084		2,706	0.82	%	$	1,112,999		2,658	0.96	%
Savings deposits		293,744		550	0.75			299,590		693	0.93
Time deposits		919,404		4,004	1.74			1,057,214		6,446	2.44
Total interest-bearing deposit accounts		2,538,232		7,260	1.14			2,469,803		9,797	1.59
Short-term borrowings:
Federal funds purchased		6,288		5	0.32			42,836		36	0.34
Securities sold under agreements to repurchase - customers		19,003		9	0.19			18,823		12	0.26
Long-term borrowings:
FHLBNY advances (4)		19,412		222	4.57			30,607		361	4.72
Obligations under capital lease		8,194		136	6.64			8,371		139	6.64
Junior subordinated debentures		92,786		1,054	4.54			92,786		1,081	4.66
Total borrowings		145,683		1,426	3.92			193,423		1,629	3.37
Total interest-bearing liabilities		2,683,915		8,686	1.29			2,663,226		11,426	1.72
Non-interest-bearing liabilities:
Non-interest-bearing demand deposits		505,036						476,478
Other liabilities		101,448						87,893
Total non-interest-bearing liabilities		606,484						564,371
Total liabilities		3,290,399						3,227,597
Shareholders' equity		287,897						365,440
Total liabilities and shareholders' equity	$	3,578,296					$	3,593,037
Net interest income			$	28,285					$	26,987
Interest rate spread (5)					3.24	%					3.06	%
Net interest margin (6)					3.47	%					3.36	%
Ratio of average interest-earning assets to average interest-bearing liabilities					121.59	%					120.80	%
(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 September 30, 2010 and 2009 was $399,000 and $521,000, 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.

-12-

SUN BANCORP, INC. AND SUBSIDIARIES
AVERAGE BALANCE SHEETS (Unaudited)
(Dollars in thousands)
	For the Nine Months Ended September 30, 2010							For the Nine Months Ended September 30, 2009
	Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Cost			Balance		Expense		Cost
Interest-earning assets:
Loans receivable (1),(2):
Commercial and industrial	$	2,265,644	$	79,555		4.68	%	$	2,237,732	$	77,774		4.63	%
Home equity lines of credit		254,999		8,969		4.69			266,878		10,080		5.04
Home equity term loans		64,047		3,020		6.29			76,851		3,715		6.45
Residential real estate		76,650		3,236		5.63			74,456		3,264		5.85
Other		62,003		3,196		6.87			75,051		3,654		6.49
Total loans receivable		2,723,343		97,976		4.80			2,730,968		98,487		4.81
Investment securities (3)		439,147		13,629		4.14			450,572		16,015		4.74
Interest-earning deposits with banks		37,242		62		0.22			50,799		81		0.21
Federal funds sold		-		-		-			125		-		-
Total interest-earning assets		3,199,732		111,667		4.65			3,232,464		114,583		4.73
Non-interest-earning assets:
Cash and due from banks		47,359							48,203
Bank properties and equipment, net		52,919							49,637
Goodwill and intangible assets, net		110,380							145,028
Other assets		152,088							140,904
Total non-interest-earning assets		362,746							383,772
Total assets	$	3,562,478						$	3,616,236
Interest-bearing liabilities:
Interest-bearing deposit accounts:
Interest-bearing demand deposits	$	1,287,747		8,112		0.84	%	$	1,038,932		7,969		1.02	%
Savings deposits		299,745		1,772		0.79			297,404		2,264		1.02
Time deposits		913,988		12,239		1.79			1,180,923		25,899		2.92
Total interest-bearing deposit accounts		2,501,480		22,123		1.18			2,517,259		36,132		1.91
Short-term borrowings:
Federal funds purchased		22,604		89		0.52			21,154		61		0.38
Securities sold under agreements to repurchase - customers		16,612		22		0.18			17,151		32		0.25
Long-term borrowings:
FHLBNY advances (4)		23,926		829		4.62			32,805		1,090		4.43
Obligations under capital lease		8,238		412		6.67			6,271		328		6.97
Junior subordinated debentures		92,786		3,085		4.43			92,786		3,400		4.89
Total borrowings		164,166		4,437		3.60			170,167		4,911		3.85
Total interest-bearing liabilities		2,665,646		26,560		1.33			2,687,426		41,043		2.04
Non-interest-bearing liabilities:
Non-interest-bearing demand deposits		472,545							435,474
Other liabilities		88,996							100,069
Total non-interest-bearing liabilities		561,541							535,543
Total liabilities		3,227,187							3,222,969
Shareholders' equity		335,291							393,267
Total liabilities and shareholders' equity	$	3,562,478						$	3,616,236
Net interest income			$	85,107						$	73,540
Interest rate spread (5)						3.32	%						2.69	%
Net interest margin (6)						3.55	%						3.03	%
Ratio of average interest-earning assets to average interest-bearing liabilities						120.04	%						120.28	%
(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 nine months ended September 30, 2010 and 2009 was $1.4 million and $1.5 million, 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.

-13-

SUN BANCORP, INC. AND SUBSIDIARIES
AVERAGE BALANCE SHEETS (Unaudited)
(Dollars in thousands)
	For the Three Months Ended September 30, 2010						��	For the Three Months Ended June 30, 2010
	Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Cost			Balance		Expense		Cost
Interest-earning assets:
Loans receivable (1),(2):
Commercial and industrial	$	2,292,274	$	26,620		4.65	%	$	2,262,656	$	26,770		4.73	%
Home equity lines of credit		250,033		2,921		4.67			256,697		3,016		4.70
Home equity term loans		60,729		932		6.14			64,051		1,025		6.40
Residential real estate		82,094		1,160		5.65			74,427		1,057		5.68
Other		59,998		1,031		6.87			62,249		1,058		6.80
Total loans receivable		2,745,128		32,664		4.76			2,720,080		32,926		4.84
Investment securities (3)		443,203		4,261		3.85			424,617		4,410		4.15
Interest-earning deposits with banks		75,059		46		0.25			26,330		13		0.20
Total interest-earning assets		3,263,390		36,971		4.53			3,171,027		37,349		4.71
Non-interest-earning assets:
Cash and due from banks		51,660							45,153
Bank properties and equipment, net		52,962							52,715
Goodwill and intangible assets, net		50,324							139,961
Other assets		159,960							145,774
Total non-interest-earning assets		314,906							383,603
Total assets	$	3,578,296						$	3,554,630
Interest-bearing liabilities:
Interest-bearing deposit accounts:
Interest-bearing demand deposits	$	1,325,084		2,706		0.82	%	$	1,276,627		2,625		0.82	%
Savings deposits		293,744		550		0.75			304,273		572		0.75
Time deposits		919,404		4,004		1.74			906,037		4,039		1.78
Total interest-bearing deposit accounts		2,538,232		7,260		1.14			2,486,937		7,236		1.16
Short-term borrowings:
Federal funds purchased		6,288		5		0.32			14,423		21		0.58
Securities sold under agreements to repurchase - customers		19,003		9		0.19			15,307		8		0.21
Long-term borrowings:
FHLBNY advances (4)		19,412		222		4.57			22,464		265		4.72
Obligations under capital lease		8,194		136		6.64			8,238		137		6.65
Junior subordinated debentures		92,786		1,054		4.54			92,786		1,023		4.41
Total borrowings		145,683		1,426		3.92			153,218		1,454		3.80
Total interest-bearing liabilities		2,683,915		8,686		1.29			2,640,155		8,690		1.32
Non-interest-bearing liabilities:
Non-interest-bearing demand deposits		505,036							471,033
Other liabilities		101,448							85,142
Total non-interest-bearing liabilities		606,484							556,175
Total liabilities		3,290,399							3,196,330
Shareholders' equity		287,897							358,300
Total liabilities and shareholders' equity	$	3,578,296						$	3,554,630
Net interest income			$	28,285						$	28,659
Interest rate spread (5)						3.24	%						3.39	%
Net interest margin (6)						3.47	%						3.62	%
Ratio of average interest-earning assets to average interest-bearing liabilities						121.59	%						120.11	%
(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 September 30, 2010 and June 30, 2010 was $399,000 and $479,000, 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.

-14-