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

News Release

For Immediate Release

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

Sun Bancorp, Inc. Reports Second Quarter 2011 Results

VINELAND, NJ – July 26, 2011 – Sun Bancorp, Inc. (NASDAQ: SNBC) reported today a net loss available to common shareholders of $1.6 million, or a loss of $0.02 per diluted share, for the second quarter ended June 30, 2011, compared to a net loss available to common shareholders of $81.2 million, or a loss of $3.46 per diluted share, for the second quarter ended June 30, 2010.

The following are key items and events that occurred during the second quarter 2011:

● The Company successfully closed the previously reported sale of $174.3 million of loans to a third party investor in May 2011.

● Received an additional $10.8 million in stock proceeds during the second quarter of 2011 pursuant to the exercise of gross-up provisions contained in the security purchases agreements executed during the first quarter of 2010. The Company anticipates additional gross-up proceeds totaling $6.1 million to be closed during the third quarter.

● The net interest margin rose to 3.59% from 3.26% in the prior quarter on strength in asset yields and a reduction in funding costs.

● Net interest income rose 5.4% to $26.5 million as compared to $25.1 million in the linked quarter

● Total loans held-for-investment increased $46.3 million to $2.32 billion at June 30, 2011 as compared to $2.27 billion at March 31, 2011.

● Net charge-offs totaled $5.0 million in the second quarter versus $83.5 million in the linked quarter, $69.4 million of which related to the sale of commercial real estate loans.

“Decisive actions to improve the credit profile, reinforce the capital position and strengthen the balance sheet of Sun Bancorp resulted in another quarter of meaningful trends,” said Thomas X. Geisel, Sun’s President and Chief Executive Officer. “Our diligent efforts to restore the quality of our loan portfolio are paying off, and this past quarter, we saw an increase in both loans outstanding and new loan production.  We also significantly improved our net interest margin and remain in a strong liquidity position.   Progress takes time, but our cumulative improvements this year further validate our corporate strategy and ability to execute.”

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Discussion of Results:

Balance Sheet

● Total assets were $3.21 billion at June 30, 2011, as compared to $3.33 billion at March 31, 2011 and $3.42 billion at December 31, 2010.

● Gross loans held-for-investment were $2.32 billion at June 30, 2011, as compared to $2.27 billion at March 31, 2011 and $2.52 billion at December 31, 2010. Compared to the linked quarter, loans held-for-investment grew $46.3 million.

● Gross loans held-for-sale decreased $95.0 million from the linked quarter to $20.5 million at June 30, 2011. This decrease was primarily attributable to the aforementioned loan sale, whereby $99.2 million of loans that were transferred to held-for-sale at fair value during the first quarter were sold. Offsetting this decrease was $4.2 million of growth in residential mortgages originated with the intent to sell.

● Total deposits at June 30, 2011 equaled $2.72 billion, as compared to $2.85 billion at March 31, 2011 and $2.94 billion at December 31, 2010. The decrease of $123.8 million, or 4.5%, over the linked quarter was primarily due to decreases in retail certificates of deposits and public funds interest checking balances of $59.4 and $59.5 million, respectively.

Net Interest Income and Margin

● On a tax equivalent basis, net interest income increased $1.3 million over the linked quarter to $26.9 million. The average cost of interest-bearing liabilities decreased 13 basis points to 0.96%. The average yield on interest-earning assets increased 21 basis points over the linked quarter from 4.15% to 4.36%, due primarily to an increase in commercial loan yields. The net interest margin was 3.59% for the second quarter as compared to 3.26% for the linked quarter and 3.62% for the comparable prior year quarter.

Non-Interest Income

● Non-interest income was $5.0 million for the quarter ended June 30, 2011, an increase of $9.1 million over the linked quarter loss of $4.1 million and $577,000 over the comparable prior year quarter. The increase over the linked quarter was primarily attributable to a decrease of $4.8 million of fair value credit adjustments taken on the Company’s derivative portfolio and an increase of $3.4 million of gains on the sale of securities.

Non-Interest Expense

● The Company incurred $28.2 million of operating non-interest expense in the second quarter of 2011, an increase of $462,000 over the linked quarter and $264,000 over the comparable prior year quarter. Included in the second quarter was approximately $845,000 of loan sale related expenses recorded in professional fees and other expenses. Advertising expenses increased $757,000 due to television and radio promotions and real estate owned expenses increased $640,000 due to updated appraisals and losses on the sale of property.  Offsetting these increases was a decrease of $1.2 million of problem loan expenses due to the sale of non-performing loans and $752,000 of FDIC insurance expense declines resulting from reduced assessment rates.

Asset Quality

● The provision for loan losses for the second quarter was $4.8 million, as compared to $60.3 million in the linked quarter and $14.0 million in the comparable prior year quarter. The allowance for loan losses was $58.3 million at June 30, 2011, or 2.52% of gross loans held-for-investment, as compared to the allowance for loan losses to gross loans held-for-investment of 2.58% at March 31, 2011 and 3.24% at December 31, 2010.  Net charge-offs recorded in the current quarter were $5.0 million, or 0.21% of average loans, as compared to $83.5 million, or 3.35% of average loans for the linked quarter and $3.5 million, or 0.13% of average loans outstanding for the comparable prior year quarter. Net charge-offs for the current quarter included $3.3 million related to one commercial relationship.

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● Total non-performing assets were $143.5 million, or 6.13% of total gross loans held-for-investment, loans held-for-sale and real estate owned at June 30, 2011, as compared to $192.3 million, or 8.04% and $177.7 million, or 7.00%, respectively, at March 31, 2011 and December 31, 2010. Non-performing assets at June 30, 2011 included $11.3 million of loans held-for-sale. Non-performing loans decreased $47.6 million over the linked quarter to $140.2 million at June 30, 2011 from $187.8 million at March 31, 2011. This decrease was primarily due to the settlement of the loan sale, which reduced non-accrual loans held-for-sale by $60.5 million. Offsetting this decrease was the increase in non-accrual troubled debt restructurings of $14.3 million related to one commercial relationship.

Capital

● Stockholders’ equity totaled $298.8 million at June 30, 2011 compared to $286.7 million at March 31, 2011. During the second quarter 2011, the Company received an additional $10.8 million in stock proceeds pursuant to the exercise of gross-up provisions contained in the security purchase agreements executed during the first quarter of 2011. The Company’s tangible equity to tangible assets ratio was 7.95% at June 30, 2011, as compared to 7.27% at March 31, 2011 and 6.43% at June 30, 2010.  At June 30, 2011, the Company’s total risk-based capital ratio, Tier 1 capital ratio and leverage capital ratio were approximately 14.51%, 13.14%, and 10.47%, respectively.  At June 30, 2011, Sun National Bank’s total risk-based capital ratio, Tier 1 capital ratio and leverage capital ratio were approximately 12.97%, 11.71%, and 9.35%, respectively. 

The Company will hold its regularly scheduled conference call on Wednesday, July 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 $3.21 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 tax-equivalent interest income and non-operating income and expenses. Tax-equivalent interest income is a non-GAAP financial measure. Tax-equivalent interest income assumes a 35% marginal federal tax rate for all periods. The fully taxable equivalent adjustments for the three months ended June 30, 2011 and 2010 were $368,000 and $479,000, respectively. The fully taxable equivalent adjustments for the six months ended June 30, 2011 and 2010 were $777,000 and $1.0 million, respectively. The fully taxable equivalent adjustment for the three months ended March 31, 2011 was $409,000. Non-operating income and expenses are also non-GAAP financial measures. Non-operating income includes impairment losses recognized on available for sale securities included in earnings. Non-operating income for the three months ended March 31, 2011, December 31, 2010, and September 30, 2010 was $250,000, $379,000 and $950,000, respectively. There were no non-operating income items during the three months ended June 30, 2011 and 2010. Non-operating expense includes the goodwill impairment charge of $89.7 million recorded during the three months ended June 30, 2010.

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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,
		2011			2010			2011			2010
Profitability for the period:
Net interest income		$	26,492		$	28,180		$	51,618		$	55,803
Provision for loan losses			4,836			13,978			65,119			23,578
Non-interest income			4,993			4,416			894			10,067
Non-interest expense			28,244			117,686			56,026			143,762
Loss before income taxes			(1,595	)		(99,068	)		(68,633	)		(101,470	)
Net loss			(1,599	)		(81,170	)		(68,666	)		(81,932	)
Net loss available to common shareholders		$	(1,599	)	$	(81,170	)	$	(68,666	)	$	(81,932	)
Financial ratios:
Return on average assets(1)			(0.19)	%		(9.13)	%		(4.11)	%		(4.61)	%
Return on average equity(1)			(2.14)	%		(90.62)	%		(47.57)	%		(45.60)	%
Return on average tangible equity(1),(2)			(2.54)	%		(148.70)	%		(57.03)	%		(75.00)	%
Net interest margin(1)			3.59	%		3.62	%		3.43	%		3.59	%
Efficiency ratio			89.71	%		361.04	%		106.69	%		218.25	%
Efficiency ratio, excluding non-operating income and non-operating expense(3)			89.71	%		85.84	%		106.19	%		82.06	%
Loss per common share:
Basic		$	(0.02	)	$	(3.46	)	$	(1.01	)	$	(3.50	)
Diluted		$	(0.02	)	$	(3.46	)	$	(1.01	)	$	(3.50	)
Average equity to average assets			9.11	%		10.08	%		8.64	%		10.11	%

	June 30,						December 31,
	2011		2010				2010
At period-end:
Total assets	$	3,213,790		$	3,512,310		$	3,417,546
Total deposits		2,723,676			2,961,816			2,940,460
Loans receivable, net of allowance for loan losses		2,258,279			2,660,772			2,439,633
Loans held-for-sale(4)		20,514			10,980			13,824
Investments		478,814			428,362			493,493
Borrowings		33,106			81,986			33,417
Junior subordinated debentures		92,786			92,786			92,786
Shareholders’ equity		298,819			273,161			268,242
Credit quality and capital ratios:
Allowance for loan losses to gross loans     held-for-investment		2.52	%		2.70	%		3.24	%
Non-performing assets to gross loans held-for-investment, loans held-for-sale and real estate owned		6.13	%		4.62	%		7.00	%
Allowance for loan losses to non-performing loans held-for-investment		45.25	%		59.87	%		47.02	%
Total capital (to risk-weighted assets):
Sun Bancorp, Inc.		14.51	%		11.09	%		12.68	%
Sun National Bank		12.97	%		10.64	%		12.25	%
Tier 1 capital (to risk-weighted assets):
Sun Bancorp, Inc.		13.14	%		9.82	%		11.41	%
Sun National Bank		11.71	%		9.37	%		10.98	%
Leverage ratio:
Sun Bancorp, Inc.		10.47	%		8.60	%		8.93	%
Sun National Bank		9.35	%		8.22	%		8.57	%
Book value per common share	$	3.60		$	11.63		$	5.33
Tangible book value per common share	$	3.03		$	9.48		$	4.36
(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 income for the six months ended June 30, 2011 excludes net impairment losses on available for sale securities of $250,000. Non-interest expense for the three and six months ended June 30, 2010 excludes a goodwill impairment charge of $89.7 million.
(4) Amount at June 30, 2011 includes $11.3 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)
	June 30, 2011			December 31, 2010
ASSETS
Cash and due from banks	$	77,107		$	36,522
Interest-earning bank balances		115,538			150,704
Cash and cash equivalents		192,645			187,226
Investment securities available for sale (amortized cost of $461,848 and $483,255 at June 30, 2011 and December 31, 2010, respectively)		460,965			472,864
Investment securities held to maturity (estimated fair value of $2,199 and $3,155 at June 30, 2011 and December 31, 2010, respectively)		2,115			3,039
Loans receivable (net of allowance for loan losses of $58,328 and $81,713 at June 30, 2011 and December 31, 2010, respectively)		2,258,279			2,439,633
Loans held-for-sale		20,514			13,824
Restricted equity investments		15,734			17,590
Bank properties and equipment, net		55,114			53,428
Real estate owned		3,306			3,913
Accrued interest receivable		8,488			10,004
Goodwill		38,188			38,188
Intangible assets		8,789			10,631
Deferred taxes, net		361			4,245
Bank owned life insurance (BOLI)		75,762			74,656
Other assets		73,530			88,305
Total assets	$	3,213,790		$	3,417,546
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits	$	2,723,676		$	2,940,460
Securities sold under agreements to repurchase – customers		6,743			6,307
Advances from the Federal Home Loan Bank of New York (FHLBNY)		3,372			3,999
Securities sold under agreements to repurchase – FHLBNY		15,000			15,000
Obligations under capital lease		7,991			8,111
Junior subordinated debentures		92,786			92,786
Other liabilities		65,403			82,641
Total liabilities		2,914,971			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; 85,159,810 shares issued and 83,053,087 shares outstanding at June 30, 2011; 52,463,594 shares issued and 50,356,871 shares outstanding at December 31, 2010		85,160			52,464
Additional paid-in capital		499,176			438,335
Retained deficit		(258,681	)		(190,015	)
Accumulated other comprehensive loss		(523	)		(6,146	)
Deferred compensation plan trust		(151	)		(234	)
Treasury stock at cost, 2,106,723 shares at  June 30, 2011 and December 31, 2010		(26,162	)		(26,162	)
Total shareholders’ equity		298,819			268,242
Total liabilities and shareholders’ equity	$	3,213,790		$	3,417,546

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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,
		2011			2010			2011			2010
INTEREST INCOME
Interest and fees on loans	$	28,538		$	32,926		$	56,966		$	65,312
Interest on taxable investment securities		2,864			2,850			5,483			6,039
Interest on non-taxable investment securities		683			888			1,442			1,893
Dividends on restricted equity investments		220			206			463			433
Total interest income		32,305			36,870			64,354			73,677
INTEREST EXPENSE
Interest on deposits		4,808			7,236			10,398			14,863
Interest on funds borrowed		356			431			711			980
Interest on junior subordinated debentures		649			1,023			1,627			2,031
Total interest expense		5,813			8,690			12,736			17,874
Net interest income		26,492			28,180			51,618			55,803
PROVISION FOR LOAN LOSSES		4,836			13,978			65,119			23,578
Net Interest income (loss) after provision for loan losses		21,656			14,202			(13,501	)		32,225
NON-INTEREST INCOME
Service charges on deposit accounts		2,702			3,044			5,252			5,988
Other service charges		88			99			174			178
Gain on sale of loans		708			712			1,633			1,315
Impairment losses on available for sale securities		-			-			(250	)		-
Gain on sale of investment securities		2,421			145			1,408			145
Investment products income		1,010			792			1,898			1,395
BOLI income		560			539			1,106			1,077
Derivative credit valuation adjustment		(3,624	)		(1,980	)		(12,015	)		(2,011	)
Other		1,128			1,065			1,688			1,980
Total non-interest income		4,993			4,416			894			10,067
NON-INTEREST EXPENSE
Salaries and employee benefits		12,885			14,361			25,871			27,220
Occupancy expense		3,305			2,895			6,709			6,435
Equipment expense		1,903			1,750			3,585			3,486
Data processing expense		1,111			1,101			2,176			2,187
Amortization of intangible assets		921			921			1,842			1,842
Goodwill impairment		-			89,706			-			89,706
Insurance expense		1,261			2,020			3,274			3,527
Professional fees		1,215			459			1,980			1,043
Advertising expense		1,322			532			1,887			1,112
Problem loan expense		1,863			1,461			4,970			2,284
Real estate owned expense, net		635			94			630			310
Office supplies expense		324			421			669			786
Other		1,499			1,965			2,433			3,824
Total non-interest expense		28,244			117,686			56,026			143,762
LOSS BEFORE INCOME TAXES		(1,595	)		(99,068	)		(68,633	)		(101,470	)
INCOME TAX EXPENSE (BENEFIT)		4			(17,898	)		33			(19,538	)
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS	$	(1,599	)	$	(81,170	)	$	(68,666	)	$	(81,932	)
Basic loss per share	$	(0.02	)	$	(3.46	)	$	(1.01	)	$	(3.50	)
Diluted loss per share	$	(0.02	)	$	(3.46	)	$	(1.01	)	$	(3.50	)
Weighted average shares – basic	82,585,859			23,431,305			68,160,742			23,398,538
Weighted average shares - diluted	82,585,859			23,431,305			68,160,742			23,398,538

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SUN BANCORP, INC. AND SUBSIDIARIES
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in thousands)
	2011			2011			2010			2010			2010
	Q2			Q1			Q4			Q3			Q2
Balance sheet at quarter end:
Cash and cash equivalents	$	192,645		$	266,504		$	187,226		$	205,265		$	52,810
Investment securities		478,814			470,546			493,493			479,055			428,362
Loans held-for-investment:
Commercial and industrial		1,905,628			1,862,903			2,103,492			2,235,715			2,289,148
Home equity		234,688			232,318			239,729			244,274			252,425
Second mortgage		47,920			50,388			53,912			58,305			61,941
Residential real estate		75,546			69,311			65,250			68,938			68,054
Other		52,825			55,402			58,963			58,930			62,956
Total gross loans held-for-investment		2,316,607			2,270,322			2,521,346			2,666,162			2,734,524
Allowance for loan losses		(58,328	)		(58,498	)		(81,713	)		(74,579	)		(73,752	)
Net loans held-for-investment		2,258,279			2,211,824			2,439,633			2,591,583			2,660,772
Loans held-for-sale		20,514			115,473			13,824			16,616			10,980
Goodwill		38,188			38,188			38,188			38,188			38,188
Intangible assets		8,789			9,710			10,631			11,552			12,474
Total assets		3,213,790			3,333,808			3,417,546			3,603,637			3,512,310
Total deposits		2,723,676			2,847,467			2,940,460			3,051,894			2,961,816
Federal funds purchased		-			-			-			-			37,000
Securities sold under agreements to repurchase - customers		6,743			6,591			6,307			15,702			17,156
Advances from FHLBNY		3,372			3,687			3,999			4,308			4,613
Securities sold under agreements to repurchase - FHLBNY		15,000			15,000			15,000			15,000			15,000
Obligations under capital lease		7,991			8,051			8,111			8,169			8,217
Junior subordinated debentures		92,786			92,786			92,786			92,786			92,786
Total shareholders' equity		298,819			286,739			268,242			303,038			273,161
Quarterly average balance sheet:
Loans(1):
Commercial and industrial	$	1,936,621		$	2,072,519		$	2,184,212		$	2,292,274		$	2,262,656
Home equity		234,451			235,962			241,510			250,033			256,697
Second mortgage		50,257			53,402			57,310			60,729			64,051
Residential real estate		76,816			73,662			88,144			82,094			74,427
Other		52,831			55,847			57,522			59,998			62,249
Total gross loans		2,350,976			2,491,392			2,628,698			2,745,128			2,720,080
Securities and other interest-earning assets		643,808			639,092			658,013			518,262			450,947
Total interest-earning assets		2,994,784			3,130,484			3,286,711			3,263,390			3,171,027
Total assets		3,287,485			3,394,139			3,582,647			3,578,296			3,554,630
Non-interest-bearing demand deposits		491,235			481,605			509,093			505,036			471,033
Total deposits		2,774,767			2,904,448			3,032,594			3,043,268			2,957,970
Total interest-bearing liabilities		2,409,629			2,549,566			2,657,984			2,683,915			2,640,155
Total shareholders' equity		299,427			277,808			297,118			287,897			358,300
Capital and credit quality measures:
Total capital (to risk-weighted assets):
Sun Bancorp, Inc.		14.51	%		13.73	%		12.68	%		12.92	%		11.09	%
Sun National Bank		12.97	%		12.65	%		12.25	%		12.04	%		10.64	%
Tier 1 capital (to risk-weighted assets):
Sun Bancorp, Inc.		13.14	%		12.11	%		11.41	%		8.02	%		9.82	%
Sun National Bank		11.71	%		11.38	%		10.98	%		10.77	%		9.37	%
Leverage ratio:
Sun Bancorp, Inc.		10.47	%		9.62	%		8.93	%		6.67	%		8.60	%
Sun National Bank		9.35	%		9.05	%		8.57	%		8.91	%		8.22	%
Average equity to average assets		9.11	%		8.18	%		8.29	%		8.05	%		10.08	%
Allowance for loan losses to total gross loans held-for-investment		2.52	%		2.58	%		3.24	%		2.80	%		2.70	%
Non-performing assets to gross loans held-for-investment, loans held-for-sale and real estate owned		6.13	%		8.04	%		7.00	%		7.77	%		4.62	%
Allowance for loan losses to non-performing loans held-for-investment		45.25	%		50.41	%		47.02	%		36.46	%		59.87	%
Other data:
Net charge-offs		(5,006	)		(83,498	)		(28,377	)		(41,602	)		(3,518	)
Non-performing assets:
Non-accrual loans	$	113,806		$	113,959		$	159,426		$	192,769		$	120,685
Non-accrual loans held-for-sale		11,296			71,771			-			-			-
Troubled debt restructurings, non-accrual		15,090			831			11,796			-			-
Loans past due 90 days and accruing		-			1,263			2,554			11,802			2,500
Real estate owned, net		3,306			4,439			3,913			4,272			3,828
Total non-performing assets		143,498			192,263			177,689			208,843			127,013
Troubled debt restructuring, performing		-			20,276			20,341			20,396			19,161
(1) Average balances include non-accrual loans and loans held-for-sale

-9-

SUN BANCORP, INC. AND SUBSIDIARIES
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in thousands, except share and per share amounts)
	2011			2011			2010			2010			2010
	Q2			Q1			Q4			Q3			Q2
Profitability for the quarter:
Tax-equivalent interest income	$	32,673		$	32,458		$	35,736		$	36,971		$	37,349
Interest expense		5,813			6,923			8,081			8,686			8,690
Tax-equivalent net interest income		26,860			25,535			27,655			28,285			28,659
Tax-equivalent adjustment		368			409			382			399			479
Provision for loan losses		4,836			60,283			35,511			42,429			13,978
Non-interest income (loss) excluding net impairment losses on available for sale securities		4,993			(3,849	)		8,176			(1,402	)		4,416
Net impairment losses on available for sale securities		-			(250	)		(379	)		(950	)		-
Non-interest expense excluding amortization of intangible assets		27,323			26,861			27,028			28,419			27,060
Amortization of intangible assets		921			921			921			922			90,627
Loss before income taxes		(1,595	)		(67,038	)		(28,390	)		(46,236	)		(99,068	)
Income tax expense (benefit)		4			29			103			28,757			(17,898	)
Net loss		(1,599	)		(67,067	)		(28,493	)		(74,993	)		(81,170	)
Net loss available to common shareholders	$	(1,599	)	$	(67,067	)	$	(28,219	)	$	(75,267	)	$	(81,170	)
Financial ratios:
Return on average assets (1)		(0.19)	%		(7.90)	%		(3.18)	%		(8.38)	%		(9.13)	%
Return on average equity (1)		(2.14)	%		(96.57)	%		(38.36)	%		(104.19)	%		(90.62)	%
Return on average tangible equity (1),(2)		(2.54)	%		(116.91)	%		(46.01)	%		(126.27)	%		(148.70)	%
Net interest margin (1)		3.59	%		3.26	%		3.37	%		3.47	%		3.62	%
Efficiency ratio		89.71	%		132.13	%		79.69	%		114.91	%		361.04	%
Efficiency ratio, excluding non-operating income and non-operating expense		89.71	%		130.57	%		78.84	%		110.79	%		85.84	%
Per share data:
Loss per common share:
Basic	$	(0.02	)	$	(1.25	)	$	(0.67	)	$	(3.14	)	$	(3.46	)
Diluted	$	(0.02	)	$	(1.25	)	$	(0.67	)	$	(3.14	)	$	(3.46	)
Book value	$	3.60		$	3.62		$	5.33		$	7.62		$	11.63
Tangible book value	$	3.03		$	3.02		$	4.36		$	5.86		$	9.48
Average basic shares	82,585,859			53,575,346			42,119,553			23,960,691			23,431,305
Average diluted shares	82,585,859			53,575,346			42,119,553			23,960,691			23,431,305
Operating non-interest income (loss):
Service charges on deposit accounts	$	2,702		$	2,550		$	2,715		$	2,869		$	3,044
Other service charges		88			86			94			92			99
Gain on sale of loans		708			925			1,324			921			712
Net gain (loss) on sale of available for sale securities		2,421			(1,013	)		4,606			-			145
Investment products income		1,010			888			728			708			792
BOLI income		560			546			452			545			539
Derivative credit valuation adjustment		(3,624	)		(8,391	)		(2,705	)		(7,498	)		(1,980	)
Other income		1,128			560			962			961			1,065
Total operating non-interest income (loss)		4,993			(3,849	)		8,176			(1,402	)		4,416
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 income (loss)	$	4,993		$	(4,099	)	$	7,797		$	(2,352	)	$	4,416
Operating non-interest expense:
Salaries and employee benefits	$	12,885		$	12,986		$	12,920		$	15,079		$	14,361
Occupancy expense		3,305			3,404			3,043			3,030			2,895
Equipment expense		1,903			1,682			1,634			1,663			1,750
Data processing expense		1,111			1,065			1,133			1,039			1,101
Amortization of intangible assets		921			921			921			922			921
Insurance expense		1,261			2,013			2,064			2,105			2,020
Professional fees		1,215			765			1,220			461			459
Advertising expense		1,322			565			390			833			532
Problem loan expense		1,863			3,107			1,923			956			1,461
Real estate owned expense (income), net		635			(5	)		398			93			94
Office supplies expense		324			345			338			377			421
Other expenses		1,499			934			1,965			2,783			1,965
Total operating non-interest expense		28,244			27,782			27,949			29,341			27,980
Non-operating expense(3):
Goodwill impairment		-			-			-			-			89,706
Total non-operating expense	$	-		$	-		$	-			-			89,706
Total non-interest expense	$	28,244		$	27,782		$	27,949		$	29,341		$	117,686
(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.

-10-

SUN BANCORP, INC. AND SUBSIDIARIES
AVERAGE BALANCE SHEETS (Unaudited)
(Dollars in thousands)
	For the Three Months Ended June 30,
	2011							2010
	Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Cost			Balance		Expense		Cost
Interest-earning assets:
Loans receivable(1),(2):
Commercial and industrial	$	1,936,621	$	23,385		4.83	%	$	2,262,656	$	26,770		4.73	%
Home equity		234,451		2,458		4.19			256,697		3,016		4.70
Second mortgage		50,257		734		5.84			64,051		1,025		6.40
Residential real estate		76,816		1,042		5.43			74,427		1,057		5.68
Other		52,831		919		6.96			62,249		1,058		6.80
Total loans receivable		2,350,976		28,538		4.86			2,720,080		32,926		4.84
Investment securities(3)		501,959		4,049		3.23			424,617		4,410		4.15
Interest-earning bank balances		141,849		86		0.24			26,330		13		0.20
Total interest-earning assets		2,994,784		32,673		4.36			3,171,027		37,349		4.71
Non-interest earning assets:
Cash and due from banks		75,200							45,153
Bank properties and equipment, net		54,065							52,715
Goodwill and intangible assets, net		47,431							139,961
Other assets		116,005							145,774
Total non-interest-earning assets		292,701							383,603
Total assets	$	3,287,485						$	3,554,630
Interest-bearing liabilities:
Interest-bearing deposit accounts:
Interest-bearing demand deposits	$	1,321,341	$	1,822		0.55	%	$	1,276,627	$	2,625		0.82	%
Savings deposits		275,315		379		0.55			304,273		572		0.75
Time deposits		686,876		2,607		1.52			906,037		4,039		1.78
Total interest-bearing deposit accounts		2,283,532		4,808		0.84			2,486,937		7,236		1.16
Short-term borrowings:
Federal funds purchased		-		-		-			14,423		21		0.58
Securities sold under agreements to repurchase - customers		6,813		2		0.12			15,307		8		0.21
Long-term borrowings:
FHLBNY advances(4)		18,479		224		4.85			22,464		265		4.72
Obligations under capital lease		8,019		130		6.48			8,238		137		6.65
Junior subordinated debentures		92,786		649		2.80			92,786		1,023		4.41
Total borrowings		126,097		1,005		3.19			153,218		1,454		3.80
Total interest-bearing liabilities		2,409,629		5,813		0.96			2,640,155		8,690		1.32
Non-interest bearing liabilities:
Non-interest-bearing demand deposits		491,235							471,033
Other liabilities		87,194							85,142
Total non-interest bearing liabilities		578,429							556,175
Total liabilities		2,988,058							3,196,330
Shareholders' equity		299,427							358,300
Total liabilities and shareholders' equity	$	3,287,485						$	3,554,630
Net interest income			$	26,860						$	28,659
Interest rate spread(5)						3.40	%						3.39	%
Net interest margin(6)						3.59	%						3.62	%
Ratio of average interest-earning assets to average interest-bearing liabilities						124.28	%						120.11	%
(1)  Average balances include non-accrual loans and loans held-for-sale.
(2)  Loan fees are included in interest income and the amount is not material for this analysis.
(3)  Interest earned on non-taxable investment securities is shown on a tax-equivalent basis assuming a 35% marginal federal tax rate for all periods. The fully taxable equivalent adjustments for the three months ended June 30, 2011 and 2010 were $368,000 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.

-11-

SUN BANCORP, INC. AND SUBSIDIARIES
AVERAGE BALANCE SHEETS (Unaudited)
(Dollars in thousands)
	For the Six Months Ended June 30,
	2011							2010
	Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Cost			Balance		Expense		Cost
Interest-earning assets:
Loans receivable(1),(2):
Commercial and industrial	$	2,004,195	$	46,537		4.64	%	$	2,252,108	$	52,936		4.70	%
Home equity		235,203		5,008		4.26			257,523		6,048		4.70
Second mortgage		51,821		1,509		5.82			65,734		2,088		6.35
Residential real estate		75,247		2,048		5.44			73,883		2,076		5.62
Other		54,331		1,864		6.86			63,022		2,164		6.87
Total loans receivable		2,420,797		56,966		4.71			2,712,270		65,312		4.82
Investment securities(3)		486,366		7,983		3.28			437,085		9,367		4.29
Interest-earning bank balances		149,944		182		0.24			18,020		17		0.19
Total interest-earning assets		3,057,107		65,131		4.26			3,167,375		74,696		4.72
Non-interest earning assets:
Cash and due from banks		71,592							45,173
Bank properties and equipment, net		53,803							52,897
Goodwill and intangible assets, net		47,889							140,905
Other assets		110,127							148,088
Total non-interest-earning assets		283,411							387,063
Total assets	$	3,340,518						$	3,554,438
Interest-bearing liabilities:
Interest-bearing deposit accounts:
Interest-bearing demand deposits	$	1,357,063	$	4,000		0.59	%	$	1,268,769	$	5,406		0.85	%
Savings deposits		276,356		806		0.58			302,796		1,223		0.81
Time deposits		719,383		5,592		1.55			911,235		8,234		1.81
Total interest-bearing deposit accounts		2,352,802		10,398		0.88			2,482,800		14,863		1.20
Short-term borrowings:
Federal funds purchased		-		-		-			30,898		84		0.54
Securities sold under agreements to repurchase - customers		6,938		5		0.14			15,396		13		0.17
Long-term borrowings:
FHLBNY advances(4)		18,635		442		4.74			26,221		608		4.64
Obligations under capital lease		8,049		264		6.56			8,260		275		6.66
Junior subordinated debentures		92,786		1,627		3.51			92,786		2,031		4.38
Total borrowings		126,408		2,338		3.70			173,561		3,011		3.47
Total interest-bearing liabilities		2,479,210		12,736		1.03			2,656,361		17,874		1.35
Non-interest bearing liabilities:
Non-interest-bearing demand deposits		486,446							456,030
Other liabilities		86,184							82,666
Total non-interest bearing liabilities		572,630							538,696
Total liabilities		3,051,840							3,195,057
Shareholders' equity		288,678							359,381
Total liabilities and shareholders' equity	$	3,340,518						$	3,554,438
Net interest income			$	52,395						$	56,822
Interest rate spread(5)						3.23	%						3.37	%
Net interest margin(6)						3.43	%						3.59	%
Ratio of average interest-earning assets to average interest-bearing liabilities						123.31	%						119.24	%
(1)  Average balances include non-accrual loans and loans held-for-sale.
(2)  Loan fees are included in interest income and the amount is not material for this analysis.
(3)  Interest earned on non-taxable investment securities is shown on a tax-equivalent basis assuming a 35% marginal federal tax rate for all periods. The fully taxable equivalent adjustments for the six months ended June 30, 2011 and 2010 were $777,000 and $1.0 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.

-12-

SUN BANCORP, INC. AND SUBSIDIARIES
AVERAGE BALANCE SHEETS (Unaudited)
(Dollars in thousands)
	For the Three Months Ended
	June 30, 2011							March 31, 2011
	Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Cost			Balance		Expense		Cost
Interest-earning assets:
Loans receivable(1),(2):
Commercial and industrial	$	1,936,621	$	23,385		4.83	%	$	2,072,519	$	23,152		4.47	%
Home equity		234,451		2,458		4.19			235,962		2,550		4.32
Second mortgage		50,257		734		5.84			53,402		775		5.81
Residential real estate		76,816		1,042		5.43			73,662		1,005		5.46
Other		52,831		919		6.96			55,847		946		6.78
Total loans receivable		2,350,976		28,538		4.86			2,491,392		28,428		4.56
Investment securities(3)		501,959		4,049		3.23			480,964		3,934		3.27
Interest-earning bank balances		141,849		86		0.24			158,128		96		0.24
Total interest-earning assets		2,994,784		32,673		4.36			3,130,484		32,458		4.15
Non-interest earning assets:
Cash and due from banks		75,200							67,944
Bank properties and equipment, net		54,065							53,538
Goodwill and intangible assets, net		47,431							48,352
Other assets		116,005							93,821
Total non-interest-earning assets		292,701							263,655
Total assets	$	3,287,485						$	3,394,139
Interest-bearing liabilities:
Interest-bearing deposit accounts:
Interest-bearing demand deposits	$	1,321,341	$	1,822		0.55	%	$	1,393,182	$	2,178		0.63	%
Savings deposits		275,315		379		0.55			277,409		427		0.62
Time deposits		686,876		2,607		1.52			752,252		2,985		1.59
Total interest-bearing deposit accounts		2,283,532		4,808		0.84			2,422,843		5,590		0.92
Short-term borrowings:
Securities sold under agreements to repurchase - customers		6,813		2		0.12			7,064		3		0.17
Long-term borrowings:
FHLBNY advances(4)		18,479		224		4.85			18,794		218		4.64
Obligations under capital lease		8,019		130		6.48			8,079		134		6.63
Junior subordinated debentures		92,786		649		2.80			92,786		978		4.22
Total borrowings		126,097		1,005		3.19			126,723		1,333		4.21
Total interest-bearing liabilities		2,409,629		5,813		0.96			2,549,566		6,923		1.09
Non-interest bearing liabilities:
Non-interest-bearing demand deposits		491,235							481,605
Other liabilities		87,194							85,161
Total non-interest bearing liabilities		578,429							566,766
Total liabilities		2,988,058							3,116,332
Shareholders' equity		299,427							277,808
Total liabilities and shareholders' equity	$	3,287,485						$	3,394,140
Net interest income			$	26,860						$	25,535
Interest rate spread(5)						3.40	%						3.06	%
Net interest margin(6)						3.59	%						3.26	%
Ratio of average interest-earning assets to average interest-bearing liabilities						124.28	%						122.78	%
(1)  Average balances include non-accrual loans and loans held-for-sale.
(2)  Loan fees are included in interest income and the amount is not material for this analysis.
(3)  Interest earned on non-taxable investment securities is shown on a tax-equivalent basis assuming a 35% marginal federal tax rate for all periods. The fully taxable equivalent adjustments for the three months ended June 30, 2011 and March 31, 2011 were $368,000 and $409,000, 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.

-13-