The following discussion and analysis presents a review of the consolidated operating results of the Company and the Bank for the six months and three months ended June 30, 2009 and 2008, respectively, and the financial condition of the Company at June 30, 2009 and December 31, 2008. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes thereto included herein and contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

FORWARD-LOOKING STATEMENTS

Statements included in this Quarterly Report on Form 10-Q, or incorporated herein by reference, that do not relate to present or historical conditions are "forward-looking statements" within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Additional oral or written forward-looking statements may be made by Sun American Bancorp (the "Company"), from time to time, and such statements may be included in documents that are filed with the Securities and Exchange Commission. Such forward-looking statements involve risks and uncertainties that could cause results or outcomes to differ materially from those expressed in the forward-looking statements. Forward-looking statements may include, without limitation, statements relating to the Company's plans, strategies, objectives, expectations and intentions and are intended to be made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as "believes," "forecasts," "intends," "possible," "estimates," "anticipates," "expects", and "plans" and similar expressions are intended to identify forward-looking statements. The Company's ability to predict projected results or the effect of events on the Company's operating results is inherently uncertain. Forward-looking statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those discussed in this document. Factors that could affect the Company's assumptions and predictions include, but are not limited to, the risks that (i) loan losses would have a material adverse effect on the Company's financial condition and operating results; (ii) a decline in the value of the collateral securing the Company's loans could result in an increase in losses on foreclosure; (iii) the Company faces risk and uncertainty relating to regulatory requirements and restrictions, including restrictions on the payment of dividends, the growth of the Bank's assets, and the Bank's expansion through acquisitions, resulting from our current under capitalized status, or any further adverse change in our capital classification or other actions by governmental bodies, or regulatory agencies; (iv) the geographical concentration of the Company's business in Florida makes the Company highly susceptible to local economic and business conditions; (v) changes in interest rates may adversely affect the Company's financial condition; (vi) competition from other financial institutions could adversely affect the Company's profitability and growth; (vii) the adequacy of our loan loss allowance; (viii) risks related to compliance with environmental laws and regulations and other government regulations; (ix) litigation risks; (x) lack of active market for our common stock; (xi) the mortgage and real estate crisis, a continuing decline in general economic conditions, and the economic recession could adversely affect our business; (xii) lack of dividends, dilution and anti-takeover provisions in our Amended and Restated Certificate of Incorporation and By-laws; and (xiii) the Company's ability to resolve its noncompliance with a specific loan covenant under its Modification to Loan and Stock Pledge Agreement with the FDIC as receiver for Silverton Bank N.A. You should not place undue reliance on the Company's forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made, and the Company undertakes no obligation to update or revise any forward-looking statements.

OVERVIEW

The Company's primary market and service area is Broward, Miami-Dade, Palm Beach and Martin counties where the Company currently operates thirteen full service banking offices. The Company has grown significantly in recent years due to the acquisition of certain assets, and assumption of certain liabilities, of PanAmerican Bank in December 2001, Gulf Bank in February 2004, Beach Bank in December 2006, and the merger with Independent Community Bank completed in March 2007. Coupled with these transactions, the Company had pursued a growth strategy, increasing its level of earning assets, primarily through increases in the loan portfolio by concentrating on the origination of commercial and consumer loan products and by competitively pricing deposit products.

In 2008 and for the first half of 2009, growth was intentionally slowed in response to the deteriorating economic environment in the Bank's marketplace. In the near term the Bank has no plans for expansion. Preservation of capital and pursuit of new capital are priorities. In the medium to longer term, once market conditions return to normal, the Bank intends to continue to expand its business through internal growth. The Bank will place a priority on obtaining new core client deposits.

As of June 30, 2009, the Company had total assets of $582.4 million, net loans of $439.1 million, deposits of $459.2 million and shareholders' equity of $20.9 million.

The Company's results of operations are primarily dependent upon the results of operations of the Bank. The Bank conducts a commercial banking business which generally consists of attracting deposits from the general public and applying a majority of these funds (typically 75% to 90%) to the origination of commercial loans to small businesses, consumer loans, and secured real estate loans in its local trade area of South Florida. The balance of the Bank's portfolio (approximately 10% to 25%) is generally held in cash and invested in government backed investment grade securities.

The Company is predominantly a commercial lender in the South Florida market place and is therefore exposed to the current weakened real estate conditions in our South Florida geographic region. During 2008 and through the second quarter of 2009, the banking industry in general, and Florida banks in particular, experienced significant declines in the value of real estate collateral held to support funds provided to its borrowers. The Company's financial results for 2009 and 2008 reflect the impact of higher provisions for loan losses and margin compression. The Company reported non-performing assets of $67.7 million at June 30, 2009 compared to $29.8 million at December 31, 2008. The Company is working aggressively to resolve issues related to borrowers who are experiencing, or who may in the future experience, loan performance issues. Initiatives include workouts, loan sales and, when required, foreclosures. The Company's policy is to monitor borrower activity closely and to identify potential issues before they grow. The Company works with its borrowers to provide solutions that are in the best interests of both the borrower and the Company. However, the Company recognizes that during this period of real estate challenges, these types of problems are not resolved quickly, and it is likely that they will continue through all of 2009 and beyond.

The allowance for loan losses at June 30, 2009 was $14.8 compared to $6.6 million at December 31, 2008. The allowance for loan losses represented 3.27% of total loans at June 30, 2009 compared to 1.39% at December 31, 2008. The reason for the significant increase in allowance for loan losses in the first six months of 2009 was due to a federal regulatory examination in the second quarter of 2009 where the regulators required the Bank to change to our methodology used in determining our accounting estimate for allowance for loan losses. The primary change to the methodology was to shorten the measurement period used in determination of the historic loss component of the loan pool calculation from three years to eighteen months. The impact of this change was to increase the reported allowance for loan losses by approximately $6.2 million in the second quarter of 2009 from the amount that would have been reported under the previous methodology.

Management continues to monitor the adequacy of our loan loss provisions in conjunction with the current economic condition in South Florida. Real estate values in Florida have, in general, declined throughout 2008 and into the first half of 2009. It is recognized that this negatively impacts collateral values that support outstanding loans in the Bank's portfolio. It is recognized that a risk exists that real estate value in our markets may continue to decline and thus additional reserves may be required as 2009 progresses.

Due to higher loan loss provisions required in the second quarter of 2009, the Bank's risk based capital ratios declined. The total risk based capital ratio was 7.52% at June 30, 2009 which was under capitalized according to the Federal regulatory definition. The Bank's Tier 1 risk based capital ratio was 6.24% which was "well capitalized" according to the Federal regulatory definition. The Bank's Tier 1 Leverage risk based capital ratio was 4.90% which was "adequately capitalized" according to the Federal regulatory definition.

LIQUIDITY

Regulatory agencies require that the Bank maintain sufficient liquidity to operate in a sound and safe manner. The principal sources of liquidity and funding are generated by the operations of the Bank through its diverse deposit base, loan participations and other asset/liability measures. For banks, liquidity represents the ability to meet loan commitments, withdrawals of deposit funds, and operating expenses. The level and maturity of deposits necessary to support the lending and investment activities is determined through monitoring loan demand and through the Bank's management process. Considerations in managing the liquidity position include scheduled cash flows from existing assets, contingencies and liabilities, as well as projected liquidity conducive to efficient operations and are continuously evaluated as part of the asset/liability management process. Historically, the Bank has increased its level of deposits to allow for its planned asset growth. The level of deposits is influenced by general interest rates, economic conditions and competition, among other things. South Florida continues to develop and faces intense competition from other financial service providers. Management has found that adjusting pricing, or introducing new products, produces increased deposit growth. Adjusting the rate paid on money market and NOW accounts can quickly adjust the level of deposits.

The Bank is a member of the Federal Home Loan Bank of Atlanta ("FHLB"). At June 30, 2009, the Bank had $58,000,000 of FHLB fixed rate advances to assist in funding its loan portfolio growth. The Bank has pledged a security interest in its eligible real estate loan portfolio to the FHLB as collateral for borrowings obtained from the FHLB. See note 6 to the Company's Consolidated Financial Statements for additional information regarding these advances. Liquidity at June 30, 2009, consisted of $35.1 million in cash and cash equivalents and $39.5 million in available-for-sale investments, for a total of $74.6 million, compared to a total of $46.9 million at year-end 2008.

On June 15, 2009, the Company received a Notice of Default from the FDIC which serves as a receiver for Silverton, that the Company was out of compliance with a financial covenant contained in the Modified Loan Agreement with Silverton. The NPA covenant provided that the non-performing assets of the Bank will not exceed 10% of its total loans plus OREO. On or about May 21, 2009, the Company became aware that it was out of compliance with the NPA Covenant, and on that date the Company reported to the FDIC that its non-performing assets constituted 11.26% of its total loans plus OREO as of April 30, 2009. The terms of the Note provide that the failure of the Company to meet any or all financial covenants and/or conditions as listed in the Modified Loan Agreement or as otherwise set forth by Silverton constitutes an event of default under the Note. The Notice of Default provided that due to the Company's non-compliance with the NPA Covenant, the Company would not be permitted to make additional borrowings under the credit facility at this time. The principal amount outstanding under the Note, excluding interest, is currently $7,528,871.

Section 16 of the Note provides if a default occurs under the Note or any of the Loan Documents, the FDIC may at any time thereafter, take the following actions:

·

Accelerate the maturity of the note and, at the FDIC's option, any or all other obligations between the Company and Silverton; at which time the note and the accelerated obligations would be immediately due and payable; and

·

Exercise any rights and remedies as provided under the loan documents, or as provided by law or equity.

If the Company is unable to regain compliance with the NPA Covenant, the FDIC, as the receiver for Silverton, may declare our financial obligations under the loan documents including principal plus interest at the Default Rate, late charges, attorney's fees and collections costs, if any, to be immediately due and payable. The Company has requested a waiver in connection with the NPA Covenant, however, if the Company is unable to obtain a waiver and if the FDIC were to accelerate the Company's obligations under the Note following any applicable cure periods, the Company's financial condition and operating results could be adversely affected.

DISCUSSION OF FINANCIAL CONDITION CHANGES FROM JANUARY 1, 2009 TO JUNE 30, 2009

FINANCIAL CONDITION

Total assets decreased by $7.6 million, or 1.3%, to $582.4 million at June 30, 2009 from $590.0 million at December 31, 2008. The decrease was primarily due to a reduction of net loans of $27.0 million in the first six months of 2009 and was offset by increased cash balances of $18.5 million that resulted from higher levels of customer deposits.

Cash on deposit at March 31, 2009 was $35.1 million compared to $16.6 million at December 31, 2008. Cash on deposit represents available liquidity waiting to be deployed into higher yielding assets or to pay down maturing liabilities.

Net loans receivable decreased by $27.0 million, or 6%, to $439.1 million at June 30, 2009, from $466.0 million at December 31, 2008. The decrease was primarily due to a general, planned reduction of the Bank's loan portfolio during the first half of 2009.

Client deposit balances increase by $15.7 million in the first half of 2009 and non certificate of deposit core deposits increased by $87.9 million or 61%.

The Company's total capital declined by $20.8 million or 50% in the first half of 2009 from $41.8 million to $20.9 million, primarily due to loan loss provisions recorded in the first six months of 2009 totaling $16.6 million.

ASSET QUALITY AND NONPERFORMING ASSETS

In the normal course of business, the Bank has recognized, and will continue to recognize, losses resulting from the inability of certain borrowers to repay loans and the insufficient realizable value of collateral securing such loans. Accordingly, management has established an allowance for loan losses, which totaled $14.8 million at June 30, 2009 after taking charge-offs of $8.4 million in the first half of 2009, and when analyzed by management was deemed to be adequate to absorb estimated credit losses.

Results for the second quarter of 2009 included a provision for loan losses of $13.8 million which resulted from a recent federal regulatory examination that required a change to our methodology in determining our accounting estimate for allowance for loan losses. The primary change to the methodology was to shorten the measurement period used in determination of the historic loss component of the loan pool calculation from three years to eighteen months. The impact of this change was to increase the reported allowance for loan losses by approximately $6.2 million in the second quarter of 2009 from the amount that would have been reported under the previous methodology.

Management's periodic evaluation of the adequacy of the allowance is based on the Company's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay (including the timing of future payments), the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions, and other relevant factors. This evaluation is inherently subjective as it requires estimates of material factors including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change.

The Bank has a detailed system of procedures to ensure complete analysis of all factors pertinent to the evaluation of the adequacy of its loan loss allowance. The evaluation process includes analyzing general conditions in the local economy and historical loan losses as well as components within the portfolio itself to include: portfolio composition, concentrations, off-balance sheet risks, delinquencies and non-accrual loans, impaired assets, nonperforming assets and gross and net loan balances. In computing the adequacy of the loan loss allowance, management employs the following methodology:

Non-Specific Allowance: The methodology used in establishing non-specific allowances is based on a broad risk analysis of the portfolio. All significant portfolio segments, including concentrations, are analyzed. The amount of the non-specific allowance is based upon a statistical analysis that derives appropriate formulas, which are adjusted by management's subjective assessment of current and future conditions. The determination includes an analysis of loss and recovery experience in the various portfolio segments over the last eighteen months. Results of the historical loss analysis are adjusted to reflect current and anticipated conditions.

Specific Allowance: All significant commercial and industrial loans classified as either "substandard" or "doubtful" are reviewed at the end of each period to determine if a specific reserve is needed for that credit. The determination of a specific reserve for an impaired asset is evaluated in accordance with Statement of Financial Accounting Standards No. 114, and a specific reserve is very common for significant credits classified as either "substandard" or "doubtful." The establishment of a specific reserve does not necessarily mean that the credit with the specific reserve will definitely incur loss at the reserve level. It is only an estimate of potential loss based upon anticipated events.

At December 31, 2008, the allowance for loan losses was $6.6 million. During the six months ended June 30, 2009, the Company recorded a provision for loan loss of $16.6 million. Net charge-offs amounted to $8.4 million. Collectively, these items resulted in a $14.8 million allowance for loan losses at June 30, 2009. Results for the first half of 2009 included a change to our methodology in determining our accounting estimate for allowance for loan losses which resulted from a recent federal regulatory examination. The primary change to the methodology was to shorten the measurement period used in determination of the historic loss component of the , loan pool calculation from three years to eighteen months. The impact of this change was to increase the reported allowance for loan losses by approximately $6.2 million in the second quarter of 2009 from the amount that would have been reported under the previous methodology.

The Bank's impaired assets were $127.0 million at June 30, 2009, or 28% of total gross loans, compared to $89.9 million at December 31, 2008, or 19% of total gross loans. Assets which are impaired are those deemed by management as inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets which are impaired have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Nonperforming assets consist of loans that are past due 90 days or more which are still accruing interest, loans on nonaccrual status, OREO and other repossessed assets. The following table sets forth information with respect to nonperforming assets identified by the Bank at June 30, 2009 and December 31, 2008.

                                                  June 30,     December 31,
                                                    2009           2008
                                                    (Dollars in thousands)

        Delinquencies over 90 days and accruing
         Commercial                               $     486   $           --
         Commercial real estate                       7,529               --
        Non-accrual loans:
        Commercial                                    1,500            1,055
        Commercial real estate                       40,197           23,879
        Residential real estate                       7,265              565
        Consumer                                        357              429
        OREO                                          5,019            3,511
        Repossessions                                   353              353
        Total nonperforming assets                $  62,706   $       29,792

Total nonperforming assets have increased during the six months ended June 30, 2009 from December 31, 2008 by $32.9 million. The total of $62.7 million at June 30, 2009, consisted of forty-four loans in various stages of resolution and eight foreclosed properties plus one boat for which management believes such loans are adequately collateralized or otherwise appropriately reserved in its determination of the adequacy of the allowance for loan losses. The total of $29.8 million at December 31, 2008, consisted of thirty-five loans and seven foreclosed properties.

LIABILITIES

Liabilities increased $13.3 million, or 2%, to $561.5 million at June 30, 2009 from $548.3 million at December 31, 2008 primarily due to increase in customer deposits.

DEPOSITS

Deposit accounts include interest and non-interest checking, money market, savings, and certificates of deposit. Deposits increased to $459.2 million at March 31, 2009 from $443.5 million at December 31, 2008. The increase of 4% during the first six months of 2009 is due to focused business development.

The Bank continues to further develop its niche in small and medium size businesses, condominium associations, and individuals within its trade area in the South Florida markets. These markets include Miami-Dade, Broward, Palm Beach, and Martin Counties. Given the diverse population of these markets and geographic expanse, the Bank employs different strategies in meeting the deposit and credit needs of its communities. In addition, management continues to implement a strategy to change the mix of the deposit portfolio by focusing more heavily on core deposits, particularly savings, NOW and DDA accounts which are important components of the deposit mix which the Bank has historically maintained satisfactory levels of these types of deposit because of its policy of relationship banking.

The following is a summary of the distribution of deposits:

                                                   June 30,     December 31,
       Deposits                                      2009           2008
                                                         (In thousands)

       NOW accounts                                $  52,726   $       32,855
       Money market accounts                          28,827           29,372
       Savings accounts                              102,511           37,836
       Certificates of deposit under $100,000         98,630          145,903
       Certificates of deposit $100,000 and more     129,513          154,406
       Total interest-bearing deposits               412,207          400,372
       Non-interest bearing deposits                  46,986           43,116
       Total deposits                              $ 459,193   $      443,488

Brokered deposits were $39.3 million and $30.6 million at June 30, 2009 and December 31, 2008, respectively.

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Securities sold under agreements to repurchase at June 30, 2009 were $32.9 million compared to $35.9 million at December 31, 2008, a decrease of $3.0 million or 8%. These repurchase agreements are secured by securities owned by the Bank.

FEDERAL HOME LOAN BANK BORROWINGS

FHLB borrowings totaled $58.0 million at June 30, 2009 and at December 31, 2008. See Financial Statement Footnote No. 6.

CAPITAL

The Company's total shareholders' equity was $20.9 million at June 30, 2009, a decrease of $20.8 million, or 50%, from $41.8 million at December 31, 2008. This decrease was substantially due to loan loss provisions in the first six months of 2009 totaling $16.6 million which contributed to a net loss in the first half of 2009 of $21.4 million.

The Company and the Bank are subject to various regulatory capital requirements administered by regulatory banking agencies. Failure to meet minimum capital requirements can result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. The regulations require the Company and the Bank to meet specific capital adequacy guidelines that includes quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company's and the Bank's capital classification is also subject to qualitative judgment by the regulators about interest rate risk, concentration of credit risk and other factors. The Company's current capital classification as under capitalized or any further adverse change in our capital classification may result in additional restrictions and adverse actions by regulatory banking agencies.

In accordance with risk-based capital guidelines issued by the Federal Reserve Board, the Bank is required to maintain a minimum ratio of total capital to weighted risk assets as well as maintain minimum leverage ratios (set forth in the table below). Member banks operating at or near the minimum ratio levels are expected to have well diversified risks, including no undue interest rate risk exposure, excellent control systems, good earnings, high asset quality, high liquidity, and well managed on- and off-balance sheet activities, and in general be considered strong organizations with a composite 1 rating under the CAMEL rating system for banks. For all but the most highly rated banks meeting the above conditions, the minimum leverage ratio may require an additional 100 to 200 basis points.

The Company and the Bank's capital ratios at June 30, 2009 and December 31, 2008 are listed below:

. . .