Full Description

Sun Bancorp, Inc. serves as the holding company for Sun National Bank (the Bank). Through the Bank, the Company provides commercial and retail banking services. The Company’s lending services to businesses include term loans and lines of credit, mortgage loans, construction loans, and equipment leasing. The Company’s commercial deposit services include business checking accounts and cash management services, such as electronic banking, sweep accounts, lockbox services, Internet banking, remote deposit and controlled disbursement services. As of December 31, 2008, the Company had 70 locations, including 62 Community Banking Centers in New Jersey and five Commercial Lending Centers, including one located in Wilmington, Delaware. The Company’s primary market area consists of the State of New Jersey.

The Company’s lending services to consumers include residential mortgage loans, residential construction loans, second mortgage loans, home equity loans and installment loans. The Company’s consumer deposit services include checking accounts, savings accounts, money market deposits, certificates of deposit and individual retirement accounts. In addition, the Company offers mutual funds, securities brokerage, annuities and investment advisory services through a third-party arrangement.

Lending Activities

The principal lending activity of the Bank is the origination of commercial and industrial loans. The Bank also offers home equity loans, residential real estate and second mortgage loans and other consumer loans, including installment loans. The Bank originates several types of commercial and industrial loans. The commercial and industrial loans include short- and long-term business loans, lines of credit, mortgage loans on commercial real estate and construction loans to developers and builders. The Bank’s lending to businesses includes the origination of small business administration-guaranteed term loans and lines of credit. In addition, the Bank makes commercial loans for the acquisition, refinance, improvement and construction of real property. As of December 31, 2008, the Bank’s commercial real estate portfolio was $1.71 billion of which $771.9 million or 45.1% were classified as owner-occupied and $941.4 million or 54.9% were classified as non-owner occupied.

The Bank originates home equity lines of credit, secured by first or second homes owned or being purchased by the loan applicant. These loans are consumer revolving lines of credit. They are originated as a 20-year note that allows the borrower to draw upon the approved line of credit during the same period as the note. The Bank originates second mortgage loans secured by mortgage liens against the borrowers’ primary, secondary or investment property. Second mortgage loans are consumer term loans.

The Bank originates residential mortgages through Sun Home Loans, Inc., a wholly owned subsidiary of the Company. The majority of these loans are for owner-occupied single-family residences and originated with a forward commitment to sell the loan in the secondary market with servicing released. Included in the category of Other Loans are certain small business loans serving businesses with credit needs up to $250,000. These small business loans are lines of credit. The Other Loans category also includes secured and unsecured installment loans to consumers. Secured installment loans are secured by a variety of collateral, such as new and used automobiles, boats and certificates of deposits. Loans secured by modular housing and recreational vehicles are also included in the Other Loans category. These loans are generated through third-party arrangements. As of December 31, 2008, the Bank’s modular housing portfolio was $35.9 million.

Investment Activities

The Bank’s investments consist primarily of federal funds, securities issued or guaranteed by the United States Government or its agencies and mortgage-backed securities. Its investment portfolio also includes states and political subdivisions and trust-preferred securities.

Sources of Funds

Deposits are the primary source of the Bank's funds for lending and other investment purposes. In addition to deposits, other funds are derived from the amortization, prepayment or sale of loans, maturities or calls of investment securities, borrowings and operations.

Consumer and commercial deposits, as well as government entities are attracted principally from within the primary market area through the offering of a selection of deposit instruments, including checking, regular savings, money market deposits, term certificate accounts and individual retirement accounts. The Bank may also obtain advances from the Federal Home Loan Bank of New York (FHLBNY) to supplement its funding requirements. Such advances must be secured by a pledge of a portion of the Bank's first mortgage loans and other collateral acceptable to the FHLB. The Bank, if the need arises, may also access the Federal Reserve Bank discount window to supplement its supply of lendable funds and to meet deposit withdrawal requirements.

The Bank has overnight repurchase agreements with customers, as well as repurchase agreements with the FHLB. The Bank obtains funds through overnight repurchase agreements with customers, pursuant to which the Bank sells United States Treasury notes or securities issued or guaranteed by one of the Government Sponsored Enterprises to customers under an agreement to repurchase them, at par, on the next business day. As of December 31, 2008, the amount of securities under agreements to repurchase with customers totaled $20.3 million.

Fee Income Services

The Bank offers an array of full-service banking capabilities though products and services. The Bank offers a menu of cash management services designed to meet the needs of its commercial and small business customers. The Cash Management department offers additional products and services, such as electronic banking, sweep accounts, lockbox services, Internet banking, remote deposit and controlled disbursement services. Many of these services are provided through third-party vendors with links to the Bank's data center.

The Bank’s investment services division, in conjunction with its broker-dealer affiliation, offers experienced professionals that deliver a range of products and services to meet the needs of the Bank's customers. The products offered include insurance, annuities, mutual funds, securities and real estate investment trusts.

The Bank has a relationship with a third party to develop a referral program with lease financing products. Under this program, the third party assists the Bank in offering leasing products to its commercial customers. Leases are underwritten by the Bank as based on the creditworthiness of the Bank's customer who is the lessee with the third party being the lessor. A loan is made to the third-party leasing company on a non-recourse basis for the purchase of the asset being leased. The loan is secured by an assignment of third-party's interest as lessor and by a lien on the asset being leased. The third party makes an equity investment into each transaction for the balance of the total funded amount based on an accelerated repayment of the Bank's loan. The third party provides complete documentation services, portfolio administration and disposal or sale of equipment. To accommodate customer needs, the Bank also enters into financial derivative transactions primarily consisting of interest rate swaps.