UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended: December 31, 2005

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the transition period from ____________ to ____________

Commission File No. 0-20957
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Sun Bancorp, Inc.
(Exact Name of Registrant as Specified in Its Charter)

New Jersey 52-1382541
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)

226 Landis Avenue, Vineland, New Jersey 08360
(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code: (856) 691-7700

Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:

Common Stock, $1.00 par value
(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. YES [ ] NO [X]

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. YES [ ] NO [X]

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ]

Indicate by check mark whether the registrant is a shell company (as defined by
Rule 12b-2 of the Exchange Act). YES [ ] NO [X]

The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant, based on the closing price of the registrant's
Common Stock as of June 30, 2005 was approximately $261.2 million.

As of March 9, 2006, there were issued and outstanding 19,109,378 shares of the
registrant's Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

1. Portions of the Annual Report to Shareholders for the Fiscal Year Ended
December 31, 2005. (Parts II and IV)
2. Portions of the Proxy Statement for the 2006 Annual Meeting of
Shareholders. (Part III)

PART I

SUN BANCORP, INC. (THE "COMPANY") MAY FROM TIME TO TIME MAKE WRITTEN OR
ORAL "FORWARD-LOOKING STATEMENTS," INCLUDING STATEMENTS CONTAINED IN THE
COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION (INCLUDING THIS
ANNUAL REPORT ON FORM 10-K AND THE EXHIBITS HERETO), IN ITS REPORTS TO
SHAREHOLDERS AND IN OTHER COMMUNICATIONS BY THE COMPANY, WHICH ARE MADE IN GOOD
FAITH BY THE COMPANY PURSUANT TO THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.

THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, SUCH
AS STATEMENTS OF THE COMPANY'S PLANS, OBJECTIVES, EXPECTATIONS, ESTIMATES AND
INTENTIONS, THAT ARE SUBJECT TO CHANGE BASED ON VARIOUS IMPORTANT FACTORS (SOME
OF WHICH ARE BEYOND THE COMPANY'S CONTROL). THE FOLLOWING FACTORS, AMONG OTHERS,
COULD CAUSE THE COMPANY'S FINANCIAL PERFORMANCE TO DIFFER MATERIALLY FROM THE
PLANS, OBJECTIVES, EXPECTATIONS, ESTIMATES AND INTENTIONS EXPRESSED IN SUCH
FORWARD-LOOKING STATEMENTS: THE STRENGTH OF THE UNITED STATES ECONOMY IN GENERAL
AND THE STRENGTH OF THE LOCAL ECONOMIES IN WHICH THE COMPANY CONDUCTS
OPERATIONS; THE EFFECTS OF, AND CHANGES IN, MONETARY AND FISCAL POLICIES AND
LAWS, INCLUDING INTEREST RATE POLICIES OF THE BOARD OF GOVERNORS OF THE FEDERAL
RESERVE SYSTEM, INFLATION, INTEREST RATE, MARKET AND MONETARY FLUCTUATIONS; THE
TIMELY DEVELOPMENT OF AND ACCEPTANCE OF NEW PRODUCTS AND SERVICES OF THE COMPANY
AND THE PERCEIVED OVERALL VALUE OF THESE PRODUCTS AND SERVICES BY USERS,
INCLUDING THE FEATURES, PRICING AND QUALITY COMPARED TO COMPETITORS' PRODUCTS
AND SERVICES; THE IMPACT OF CHANGES IN FINANCIAL SERVICES' LAWS AND REGULATIONS
(INCLUDING LAWS CONCERNING TAXES, BANKING, SECURITIES AND INSURANCE);
TECHNOLOGICAL CHANGES; ACQUISITIONS; CHANGES IN CONSUMER SPENDING AND SAVING
HABITS; AND THE SUCCESS OF THE COMPANY AT MANAGING THE RISKS INVOLVED IN THE
FOREGOING.

THE COMPANY CAUTIONS THAT THE FOREGOING LIST OF IMPORTANT FACTORS IS
NOT EXCLUSIVE. THE COMPANY DOES NOT UNDERTAKE TO UPDATE ANY FORWARD-LOOKING
STATEMENT, WHETHER WRITTEN OR ORAL, THAT MAY BE MADE FROM TIME TO TIME BY OR ON
BEHALF OF THE COMPANY.

Item 1. Business.
--------

General

Sun Bancorp, Inc. (the "Company"), a New Jersey corporation, is a bank
holding company headquartered in Vineland, New Jersey. The Company's principal
subsidiary is Sun National Bank (the "Bank"). At December 31, 2005, the Company
had total assets of $3.108 billion, total deposits of $2.472 billion and total
shareholders' equity of $295.7 million. The Company's principal business is to
serve as a holding company for the Bank. As a registered bank holding company,
the Company is subject to the supervision and regulation of the Board of
Governors of the Federal Reserve System (the "Federal Reserve").

The Company provides consumer and business banking services through the
Bank's 75 Community Banking Centers as of December 31, 2005 in southern and
central New Jersey, in the contiguous New Castle County market in Delaware, and
in Philadelphia, Pennsylvania. The Bank's market area is divided into four
geographic banking groups headed by a senior area executive. The Bank offers
comprehensive lending, domestic letters of credit, remote deposit, depository
and financial services to its customers and marketplace. The Bank's lending
services to businesses include commercial business loans, equipment leasing and
commercial real estate and construction loans. The Bank's commercial deposit
services include checking accounts and cash management products such as
electronic banking, sweep accounts, lockbox services, Internet banking, PC
banking and controlled disbursement services. The Bank's lending services to
consumers include residential mortgage loans, second mortgage loans, home equity
loans and installment loans. The Bank's consumer services include checking
accounts, savings accounts, money market deposits, certificates of deposit and
individual retirement accounts. Through a third-party arrangement, the Bank
offers mutual funds, securities brokerage, annuities and investment advisory
services. The Bank is a Preferred Lender with both the Small Business
Administration (SBA) and the New Jersey Economic Development Authority.

On January 19, 2006, the Company completed the acquisition of Advantage
Bank. At the time of the acquisition, Advantage Bank operated five branches in
Hunterdon County and Somerset County, New Jersey and had approximately $164
million in assets and $149 million of deposits. The Hunterdon Somerset Counties
market represents the Bank's fourth geographic banking group, which is headed by
the former president and CEO of Advantage Bank.

In February 2006, the Bank established a new operating subsidiary, Sun
Home Loans, Inc., which is incorporated under New Jersey law. This subsidiary
will engage in mortgage banking activities. The Bank's branch and loan personnel
previously contracted outside loan correspondents to originate residential
mortgages. Sun Home Loans, Inc. intends to hire its own residential mortgage
originators. The Bank has generally not retained residential real estate loans
in its portfolio and that will be the case also for Sun Home Loans, Inc. The
majority of the loans originated by Sun Home Loans, Inc. will be made with a
forward commitment to sell these loans, without recourse, in the secondary
market shortly after the origination of the loan.

The Company's website address is www.sunnb.com. The Company's annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K and other documents filed by the Company with the Securities and Exchange
Commission are available free of charge on the Company's website under the
Investor Relations menu.

Market Area

The Bank's market area consists of 13 counties in central and southern
New Jersey, as well as New Castle County, Delaware and Philadelphia,
Pennsylvania. In late 2004, the Bank opened a loan production office in Short
Hills, New Jersey to expand its market presence into northern New Jersey beyond
the footprint of its current branch network.

The Bank's deposit gathering base and lending area is concentrated in
the communities surrounding its offices in New Jersey, Delaware and the
Philadelphia market. The Bank believes these markets are attractive and have
strong growth potential based on key economic indicators. The state of New
Jersey has the highest median household income in the nation, as well as the
second highest per capita income. The Bank's markets are home to a diverse pool
of businesses and industries, representing key opportunities for growth in the
business and commercial banking products and services segment. Related to the
Bank's retail growth, New Jersey is the most densely populated state in U.S.,
providing a deep consumer base as well. The Bank's market area is also home to
many affluent suburbs, catering to commuters who live in New Jersey and work in
New York, Philadelphia and Wilmington, Delaware.

The Bank is headquartered in Cumberland County, New Jersey. The city of
Vineland is approximately 30 miles southeast of Philadelphia, Pennsylvania, and
30 miles southeast of Camden, New Jersey. The Philadelphia International Airport
is approximately 45 minutes from Vineland. The economy of the Bank's primary
market area is based upon a mixture of the agriculture, transportation,
manufacturing and tourism trade, including a substantial casino industry in
Atlantic City, New Jersey and support businesses throughout the Bank's primary
market area. These areas are also home to commuters working in New Jersey
suburban areas and in Atlantic City, as well as in New York and Philadelphia.

Geographic Market Banking Groups

The Bank provides business and personal banking services through its
four geographic market banking groups, the newest group being Somerset and
Hunterdon Counties, New Jersey, which became a market group following the
January 19, 2006 acquisition of Advantage Bank. Each of these geographic banking
groups is headed by a senior area executive who is responsible for both
Community Banking (retail) and Wholesale Banking (commercial and business
banking). The Bank's management employs this individual market leadership
strategy in order to enable local bankers and lenders to bring the
decision-making authority and the full resources of the Bank directly to
customers in their local community. Through the decentralization of management
and authority into the four market banking groups, the Bank believes it can
offer the hometown, personalized service of a community bank with local decision
makers as well as access to a wide range of high-tech, sophisticated products
and services of the largest banks.

The following are the four Market Banking Groups and the areas they serve:

o Southern Market - Atlantic, Cape May, Cumberland, Gloucester and
Salem Counties of New Jersey and the State of Delaware

o Northwestern Market - Burlington, Camden, Essex, Mercer,
Middlesex Counties of New Jersey and City of Philadelphia

o Eastern Market - Monmouth and Ocean Counties of New Jersey

o Somerset & Hunterdon - Somerset and Hunterdon Counties of New
Jersey

Community Banking offers services to our retail customers and consists
of branch offices, consumer lending services, deposit products, investment
services, residential mortgages, the ATM network and the customer service call
center.

Wholesale Banking includes business banking and commercial banking
groups, providing lending and related products and services. The Bank's business
banking lenders serve business customers with revenues up to $7.5 million and
credit needs up to $2 million, as well as provide equipment leasing and Small
Business Administration (SBA) lending services, and enhanced small business
deposit products. The commercial banking lenders serve the corporate,
governmental and institutional banking customers with revenues over $7.5 million
and credit needs of more than $2 million, providing commercial and construction
lending, cash management and specialized services.

Lending Activities

General. The principal lending activity of the Bank is the origination
of commercial business loans, commercial real estate loans, small business loans
and SBA guaranteed loans. The Bank also offers home equity loans, residential
real estate and second mortgage loans and other consumer related loans,
including installment loans. Substantially all loans are originated in the
Bank's primary market area.

Commercial and Industrial Loans. The Bank originates several types of
commercial and industrial loans. Included, as commercial and industrial loans
are short- and long-term business loans, lines of credit, commercial real estate
loans, small business loans and real estate construction loans. The Bank's
commercial banking lenders serve companies with annual revenue generally in
excess of $7.5 million and credit needs over $2.0 million with the Business
Banking division serving all other companies. The Bank's primary focus is the
origination of commercial loans. The Bank is predominately a secured lender with
full recourse from the borrower and the collateral tends to be real estate. The
majority of the Bank's customers for these loans are small- to medium-sized
businesses.

The trend of the Bank's lending over the past several years has been
diversification of commercial and industrial loans. A large, but declining
portion of the total portfolio is concentrated in the hospitality, entertainment
and leisure industries and general office space. Many of these industries are
dependent upon seasonal business and other factors beyond the control of the
industries, such as weather and beach conditions along the New Jersey seashore.
Any significant or prolonged adverse weather or beach conditions along the New
Jersey seashore could have an adverse impact on the borrowers' ability to repay
loans. In addition, because these loans are concentrated in southern and central
New Jersey, a decline in the general economic conditions of southern or central
New Jersey and the impact on discretionary consumer spending could have a
material adverse effect on the Company's financial condition, results of
operations and cash flows. At December 31, 2005 and 2004, the Company did not
have more than 10% of its total loans outstanding concentrated in any one
catagory.

Commercial and industrial loans, because of their nature and larger
size, generally involve a greater degree of risk. This increased credit risk is
a result of several factors, including the concentration of principal in a
limited number of loans and borrowers, the effects of general economic
conditions on income-producing activities and properties and the greater
difficulty of evaluating and monitoring these types of loans. A significant
portion of the Bank's commercial and industrial loans include a balloon payment
or repricing feature. A number of factors may affect a borrower's ability to
make or refinance a balloon payment, including without limitation the financial
condition of the borrower at the time, the prevailing local economic conditions
and the prevailing interest rate environment. There can be no assurance that
borrowers will be able to make or refinance balloon payments when due.

Furthermore, the repayment of commercial real estate loans is typically
dependent upon the successful operation of the related real estate or commercial
project. If the cash flow from the project is reduced, the borrower's ability to
repay the loan may be impaired. This cash flow shortage may result in the
failure to make loan payments. In such cases, the Bank may be compelled to
modify the terms of the loan. In addition, the nature of these loans is such
that they are generally less predictable and more difficult to evaluate and
monitor. As a result, repayment of these loans may be subject to a greater
extent than residential real estate loans to adverse conditions in the real
estate market or economy. The Bank's commercial real estate loans are
predominantly owner occupied real estate.

Home Equity Lines of Credit ("HELOC"). The Bank originates home equity
lines of credit, secured by first or second homes owned or being purchased by
the loan applicant. HELOC loans are consumer revolving lines of credit. The
interest rates charged on such loans can be fixed or floating and are generally
related to the prime lending rate. HELOC loans may provide for interest only
payments for the first two years with principal payments to begin in the third
year. A home equity loan is typically originated as a twenty-year note that
allows the borrower to draw upon the approved line of credit during the same
period as the note. The Bank generally requires a loan-to-value ratio in the
range of 70% to 80% of the appraised value, less any outstanding mortgage.
Although HELOC loans expose the Bank to the risk that falling collateral values
may leave such credits inadequately secured, the Bank has not had any
significant adverse experience to date.

Second Mortgage Loans. The Bank originates second mortgage loans,
typically called Home Equity Term Loans secured by a mortgage lien against the
applicant's primary, secondary or investment property. Second mortgage loans are
consumer term loans. The interest rate charged on such loans is usually a fixed
rate related to the Bank's cost of funds and market conditions. Home Equity Term
Loans typically require fixed payments of principal and interest up to a maximum
term of fifteen years. The average second mortgage term is between five and ten
years. The Bank generally requires a loan-to-value ratio up to a maximum of 80%
of the appraised value, less any outstanding mortgages. Although Home Equity
Term Loans expose the Bank to the risk that falling collateral values may leave
such credits inadequately secured, the Bank has not had any significant adverse
experience to date.

Residential Real Estate Loans. The majority of the Bank's residential
mortgage loans consist of loans secured by owner-occupied, single-family
residences. The Bank generally originates residential mortgage loans in
conformity with FannieMae standards so that the loans will be eligible for sale
in the secondary market.

The Bank views residential real estate loans as a relationship
enhancement product. As noted above, in February 2006 the Bank established a new
operating subsidiary, Sun Home Loans, Inc., to engage in mortgage banking
activities. The Bank's branch and loan personnel previously contracted outside
loan correspondents to originate residential mortgages. Sun Home Loans, Inc.
intends to hire its own residential mortgage originators. The Bank has generally
not retained residential real estate loans in its portfolio and that will be the
case also for Sun Home Loans, Inc. The majority of the loans originated by Sun
Home Loans, Inc. will be made with a forward commitment to sell these loans,
without recourse, in the secondary market shortly after the origination of the
loan.

Other Loans. Included in other loans in addition to installment and
consumer loans are certain small business loans serving businesses with credit
needs up to $250,000. These small business loans are generally credit lines with
check writing capabilities or small business loans with overdraft protection
attached. At December 31, 2005, the Bank had $38.8 million of these small
business loans.

At December 31, 2005, the Bank had $6.2 million of installment loans
secured by a variety of collateral, such as new and used automobiles, boats and
certificates of deposits and $5.4 million of unsecured installment loans.
Installment or consumer loans may entail greater risk than residential real
estate loans, particularly in the case of consumer loans that are unsecured or
secured by assets that depreciate rapidly. Repossessed collateral for a
defaulted consumer loan may not be sufficient for repayment of the outstanding
loan, and the remaining deficiency may not be collectible.

The Bank has a modular housing portfolio with $28.0 million in loans
outstanding as of December 31, 2005. This activity is generated through a
third-party arrangement, which began in 1990. These loans are originated using
the Bank's underwriting standards, rates and terms and are approved according to
the Bank's policies. The credit risk in the modular home portfolio is managed
like any other consumer portfolio through loan to value requirements, debt to
income ratios and credit history of the borrower. Historically, the modular home
business has been viewed as a higher risk lending activity with dealers having
little to zero net worth.

Loan Solicitation and Processing. Loan originations are derived from a
number of sources such as loan officers, existing customers and borrowers and
referrals from real estate professionals, accountants, attorneys, regional
advisory boards and the Board of Directors.

Upon the receipt of a loan request, the borrower's financial condition
is analyzed, and appropriate agency reports are obtained to verify the
applicant's creditworthiness. For any real estate that will secure a loan, the
Bank obtains an appraisal or evaluation from an independent appraiser approved
by the Bank and licensed or certified by the state. After all required
information is received and evaluated, a credit decision is made. Depending on
the loan type, collateral and amount of the credit request, various levels of
approval are required. The Bank has implemented a Loan Approval Matrix (LAM)
which was devised to facilitate the timely approval of commercial loans in an
environment that promotes responsible use of coordinated lending authority by
groups of loan and credit officers. In terms of control, the LAM is structured
to provide for at least two signatures for every action.

On an annual basis, the Chief Executive Officer presents to the Board
of Directors the recommended structure of the LAM in terms of the amounts of
lending authority granted to combining levels. On that same occasion, the Chief
Executive Officer also recommends levels of lending authority within the matrix
for individual loan and credit officers. Between the annual reviews of lending
authorities by the Board of Directors, the Chief Executive Officer may assign
interim lending authorities within the LAM to individual loan and credit
officers and report his actions to the Board in a timely fashion.

Levels of individual lending authority are based on the functional
assignment of a loan officer as well as the officer's perceived level of
expertise and areas of experience.

The positions of credit officer (CO) and senior credit officer (SCO)
are an integral feature of the LAM process. CO's and SCO's are granted
substantial levels of authority but do not carry a portfolio. These individuals
are collectively responsible for maintaining the quality and soundness of the
Bank's loan portfolio. Each regional lending area is supported by a dedicated
SCO.

Loan Commitments. When a commercial loan is approved, the Bank may
issue a written commitment to the loan applicant. The loan commitment specifies
the terms and conditions of the proposed loan including the amount, interest
rate, amortization term, a brief description of the required collateral, and the
required insurance coverage. The loan commitment is valid for approximately 45
days. At December 31, 2005, the Bank had approximately $137.9 million in
commercial loans that were approved but unfunded.

Credit Risk, Credit Administration and Loan Review. Credit risk
represents the possibility that a customer or counterparty may not perform in
accordance with contractual terms. The Bank incurs credit risk whenever it
extends credit to, or enters into other transactions with customers. The risks
associated with extensions of credit include general risk, which is inherent in
the lending business, and risk specific to individual borrowers. The credit
administration department is responsible for the overall management of the
Bank's credit risk and the development, application and enforcement of uniform
credit policies and procedures the principal purpose of which is to minimize
such risk. One objective of credit administration is to identify and, monitor
and report extensions of credit by industry concentration, geographic
distribution and the type of borrower. Loan review and other loan monitoring
practices provide a means for management to ascertain whether proper credit,
underwriting and loan documentation policies, procedures and practices are being
followed by the Bank's loan officers and are being applied uniformly. While
management continues to review these and other related functional areas, there
can be no assurance that the steps the Bank has taken to date will be sufficient
to enable it to identify, measure, monitor and control all credit risk.

Investment Securities Activities

General. The investment policy of the Bank is established by senior
management and approved by the Board of Directors. It is based on asset and
liability management goals which are designed to provide a portfolio of high
quality investments that optimize interest income within acceptable limits of
safety and liquidity. The Bank's investments consist primarily of federal funds,
securities issued or guaranteed by the United States Government or its agencies,
states and political subdivisions and corporate bonds.

Sources of Funds

General. Deposits are the primary source of the Bank's funds for
lending and other investment purposes. In addition to deposits, the Bank derives
funds from the amortization, prepayment or sale of loans, maturities or sale of
investment securities, borrowings and operations. Scheduled loan principal
repayments are a relatively stable source of funds, while deposit inflows and
outflows and loan prepayments are significantly influenced by general interest
rates and market conditions.

Deposits. Consumer and commercial deposits are attracted principally
from within the Bank's primary market area through the offering of a broad
selection of deposit instruments including checking, regular savings, money
market deposits, term certificate accounts and individual retirement accounts.
Deposit account terms vary according to the minimum balance required, the time
periods the funds must remain on deposit and the interest rate, among other
factors. The Bank regularly evaluates the internal cost of funds, surveys rates
offered by competing institutions, reviews the Bank's cash flow requirements for
lending and liquidity and executes rate changes when deemed appropriate. The
Bank does not obtain funds through brokers nor does it solicit funds outside the
States of New Jersey, Delaware or Pennsylvania.

Borrowings. The Bank may obtain advances from the Federal Home Loan
Bank (the "FHLB") of New York 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. At
December 31, 2005, the Bank had $124.6 million in secured FHLB advances.
Additionally, the Company has an unsecured line of credit with another financial
institution in the amount of $5.0 million. During 2005, the Company had not
borrowed from this line of credit. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Borrowings" in the Company's
2005 Annual Report to Shareholders.

Securities Sold Under Agreement to Repurchases. 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 U.S. 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. At
December 31, 2005, the amount of securities under agreements to repurchase with
customers totaled $59.0 million. In addition, the Bank may obtain funds through
short term repurchase agreements with the FHLB. At December 31, 2005, the
Company had two $30.0 million repurchase agreements with the FHLB. Each
repurchase agreement had a maturity of less than one month. Collateral for the
FHLB repurchase agreement consisted of securities issued or guaranteed by
Government Sponsored Enterprises. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Borrowings" in the Annual
Report. For additional information regarding repurchase agreements, refer to
Note 14 of the Notes to Consolidated Financial Statements included in the
Annual Report.

Fee Income Services

The Bank offers an expanded array of full-service banking capabilities
though products and services designed to enhance the overall relationship with
its customers.

Cash Management Services. The Bank offers a menu of cash management
services designed to meet the more sophisticated 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, PC 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.

Sun Financial Services. The Bank's investment services division, in
conjunction with its broker-dealer affiliation, offers experienced professionals
that deliver a full range products and services to meet the specific needs of
the Bank's customers. The products utilized are Insurance, Mutual Funds,
Securities and Real Estate Investment Trusts.

Leasing. 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 effective 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. Under the program, the Bank
can provide leases to its customers with minimal operating expense and no
additional risk beyond normal underwriting.

Customer Derivatives. To accommodate customer needs, the Bank also
enters into financial derivative transactions primarily consisting of interest
rate swaps. Market risk exposure from customer positions is managed through
transactions with third-party dealers. The credit risk associated with
derivatives executed with customers is essentially the same as that involved in
extending loans and is subject to normal credit policies. Collateral may be
obtained based on management's assessment of the customer. The positions of
customer derivatives are recorded at fair value and changes in value are
included in non-interest income.

SBA Loan Sales. The Bank is an SBA Preferred Lender and an approved SBA
Express Lender. As an SBA Preferred Lender, the Bank has earned the privilege of
approving SBA Loans without requesting the approval of the SBA prior to closing
the loan. All SBA policies and procedures must be followed by the Bank to
maintain the Preferred Lender Status. As an approved SBA Express Lender the Bank
has earned the privilege of approving loans and lines of credit up to $350,000
and closing these loans using Bank documents which provide the Bank with quicker
turn-around times in approvals and funding of the loans. All SBA Express
policies and procedures must be followed by the Bank to maintain the SBA Express
Lender Status. The Bank's strategy is to sell the guaranteed portion of each SBA
term loan in the secondary market to generate fee income. In 2005, the Bank
recognized $989,000 from the sale of SBA loans compared to $289,000 in 2004. The
Bank anticipates that this trend will continue to grow in 2006.

Competition

The Bank faces substantial competition both in attracting deposits and
in lending funds. The States of New Jersey and Delaware and the county of
Philadelphia, Pennsylvania have high densities of financial institutions, many
of which are branches of significantly larger institutions which have greater
financial resources than the Bank, all of which are competitors of the Bank to
varying degrees. In order to compete with the many financial institutions
serving its primary market area, the Bank's strategy is to focus on providing a
superior level of personalized service to local business and individual
customers in local communities through its Market Banking Groups - as a
springboard to building long-term, profitable relationships with those customers
in its primary market area.

The competition for deposits comes from other insured financial
institutions such as commercial banks, thrift institutions, credit unions, and
multi-state regional and money center banks in the Bank's market area.
Competition for funds also includes a number of insurance products sold by local
agents and investment products such as mutual funds and other securities sold by
local and regional brokers. Loan competition varies depending upon market
conditions and comes from other insured financial institutions such as
commercial banks, thrift institutions, credit unions, multi-state regional and
money center banks, and mortgage-bankers many of whom have far greater resources
than the Bank. Non-bank competition, such as investment brokerage houses, has
intensified in recent years for all banks as non-bank competitors are not
subject to the same regulatory burdens.

Personnel

At December 31, 2005, the Company had 746 full-time and 141 part-time
employees. The Company's employees are not represented by a collective
bargaining group. The Company believes that its relationship with its employees
is good.

SUPERVISION AND REGULATION

Introduction

Bank holding companies and banks are extensively regulated under both
federal and state law. The description of statutory provisions and regulations
applicable to banking institutions and their holding companies set forth in this
Form 10-K does not purport to be a complete description of such statutes and
regulations and their effects on the Bank and the Company. The discussion is
qualified in its entirety by reference to all particular statutory or regulatory
provisions.

The Company is a legal entity separate and distinct from the Bank.
Accordingly, the right of the Company, and consequently the right of creditors
and shareholders of the Company, to participate in any distribution of the
assets or earnings of the Bank is necessarily subject to the prior claims of
creditors of the Bank, except to the extent that claims of the Company in its
capacity as creditor may be recognized. The principal sources of the Company's
revenue and cash flow are management fees and dividends from the Bank. There are
legal limitations on the extent to which a subsidiary bank can finance or
otherwise supply funds to its parent holding company.

The Company

General. As a registered bank holding company, the Company is regulated
under the Bank Holding Company Act of 1956, as amended ("BHCA") and is subject
to supervision and regular inspection by the Federal Reserve.

Sarbanes Oxley Act of 2002. On July 30, 2002, President Bush signed
into law the Sarbanes-Oxley Act of 2002 (the "Act"). The Securities and Exchange
Commission (the "SEC") has promulgated new regulations pursuant to the Act and
may continue to propose additional implementing or clarifying regulations as
necessary in furtherance of the Act. The passage of the Act by Congress and the
implementation of new regulations by the SEC subject publicly-traded companies
to additional and more cumbersome reporting regulations and disclosure.
Compliance with the Act and corresponding regulations has increased and is
expected to continue to affect the Company's non-interest expenses.

Financial Modernization. The Gramm-Leach-Bliley Act ("GLB") permits
qualifying bank holding companies to become financial holding companies and
thereby affiliate with securities firms and insurance companies and engage in
other activities that are financial in nature. GLB defines "financial in nature"
to include securities underwriting, dealing and market making; sponsoring mutual
funds and investment companies; insurance underwriting and agency; merchant
banking activities; and activities that the Federal Reserve Board has determined
to be closely related to banking. A qualifying national bank also may engage,
subject to limitations on investment, in activities that are financial in
nature, other than insurance underwriting, insurance company portfolio
investment, real estate development, and real estate investment, through a
financial subsidiary of the bank. GLB also prohibits new unitary thrift holding
companies from engaging in nonfinancial activities or from affiliating with a
nonfinancial entity.

Capital Requirements. The Federal Reserve has adopted risk-based
capital guidelines for bank holding companies, such as the Company. The required
minimum ratio of total capital to risk-weighted assets (including off-balance
sheet activities, such as standby letters of credit) is 8%. At least half of the
total capital is required to be "Tier 1 capital," consisting principally of
common shareholders' equity, noncumulative perpetual preferred stock and
minority interests in the equity accounts of consolidated subsidiaries, less
goodwill. The remainder ("Tier 2 capital") may consist of a limited amount of
subordinated debt and intermediate-term preferred stock, certain hybrid capital
instruments and other debt securities, perpetual preferred stock, and a limited
amount of the general loan loss allowance.

In addition to the risk-based capital guidelines, the Federal Reserve
established minimum leverage ratio (Tier 1 capital to average total assets)
guidelines for bank holding companies. These guidelines provide for a minimum
leverage ratio of 3% for those bank holding companies which have the highest
regulatory examination ratings and are not contemplating or experiencing
significant growth or expansion. All other bank holding companies are required
to maintain a leverage ratio of at least 1% to 2% above the 3% stated minimum.
At December 31, 2005, the Company was in compliance with these requirements. The
Bank is also subject to similar capital requirements adopted by the Office of
the Comptroller of the Currency (the "OCC") and was in compliance with such
requirements at December 31, 2005. See Note 24 of the Notes to Consolidated
Financial Statements included in the Annual Report.

The risk-based capital standards are required to take adequate account
of interest rate risk, concentration of credit risk and the risks of
non-traditional activities.

State Regulation of Bank Holding Companies. Bank holding companies are
exclusively state chartered corporations and as such are subject to state
regulation. Under ss.375 to Article 48 of the New Jersey Banking Statutes, the
Commissioner of Banking of New Jersey has the right to examine any company which
controls a bank, the cost of which examination may be assessed against and paid
by the company. Such examination may be conducted jointly, concurrently or in
lieu of examinations made by a federal or other state bank regulatory agency. As
a bank holding company located in New Jersey, the Company may acquire a bank or
bank holding company located in any state other than New Jersey, provided,
however, that such acquisition is permitted by applicable law of the United
States or any other state.

Source of Strength Policy. Under Federal Reserve policy, a bank holding
company is expected to serve as a source of financial strength to each of its
subsidiary banks and to commit resources to support each such bank. Consistent
with its "source of strength" policy for subsidiary banks, the Federal Reserve
has stated that, as a matter of prudent banking, a bank holding company
generally should not maintain a rate of cash dividends unless its net income
available to common shareholders has been sufficient to fund fully the
dividends, and the prospective rate of earnings retention appears to be
consistent with the corporation's capital needs, asset quality and overall
financial condition.

The Bank

General. The Bank is subject to supervision and examination by the OCC.
In addition, the Bank is insured by and subject to certain regulations of the
FDIC. The Bank is also subject to various requirements and restrictions under
federal and state law, including requirements to maintain reserves against
deposits, restrictions on the types, amount and terms and conditions of loans
that may be granted and limitations on the types of investments that may be made
and the types of services that may be offered. Various consumer laws and
regulations also affect the operations of the Bank.

Dividend Restrictions. Dividends from the Bank constitute the principal
source of income to the Company. The Bank is subject to various statutory and
regulatory restrictions on its ability to pay dividends to the Company. Under
such restrictions, the amount available for payment of dividends to the Company
by the Bank totaled $47 million at December 31, 2005. In addition, the OCC has
the authority to prohibit the Bank from paying dividends, depending upon the
Bank's financial condition, if such payment is deemed to constitute an unsafe or
unsound practice. The ability of the Bank to pay dividends in the future is
presently, and could be further, influenced by bank regulatory and supervisory
policies.

Affiliate Transaction Restrictions. The Bank is subject to federal laws
that limit the transactions by a subsidiary bank to or on behalf of its parent
company and to or on behalf of any nonbank subsidiaries. Such transactions by a
subsidiary bank to its parent company or to any nonbank subsidiary are limited
to 10% of a bank subsidiary's capital and surplus and, with respect to such
parent company and all such nonbank subsidiaries, to an aggregate of 20% of such
bank subsidiary's capital and surplus. Further, loans and extensions of credit
generally are required to be secured by eligible collateral in specified
amounts. Federal law also prohibits banks from purchasing "low-quality" assets
from affiliates.

Acquisitions. The Bank has the ability, subject to certain
restrictions, including state opt-out provisions, to acquire by acquisition or
merger branches outside its home state. The establishment of new interstate
branches is possible in those states with laws that expressly permit it.
Interstate branches are subject to certain laws of the states in which they are
located.

FDIC Insurance Assessments. Substantially all of the deposits of the
Bank are insured by the BIF and the remaining deposits are insured by the SAIF,
all of which are subject to FDIC insurance assessments. The amount of FDIC
assessments paid by individual insured depository institutions is based on their
relative risk as measured by regulatory capital ratios and certain other
factors.

Enforcement Powers of Federal Banking Agencies. Federal banking
agencies possess broad powers to take corrective and other supervisory action as
deemed appropriate for an insured depository institution and its holding
company. The extent of these powers depends on whether the institution in
question is considered "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." At December 31, 2005, the Bank exceeded the required ratios
for classification as "well capitalized." The classification of depository
institutions is primarily for the purpose of applying the federal banking
agencies' prompt corrective action and other supervisory powers and is not
intended to be, and should not be interpreted as, a representation of the
overall financial condition or prospects of any financial institution.

Under the OCC's prompt corrective action regulations, the OCC is
required to take certain supervisory actions against undercapitalized
institutions, the severity of which depends upon the institution's degree of
undercapitalization. Generally, a bank is considered "well capitalized" if its
ratio of total capital to risk-weighted assets is at least 10%, its ratio of
Tier 1 (core) capital to risk-weighted assets is at least 6%, its ratio of core
capital to total assets is at least 5%, and it is not subject to any order or
directive by the OCC to meet a specific capital level. A bank generally is
considered "adequately capitalized" if its ratio of total capital to
risk-weighted assets is at least 8%, its ratio of Tier 1 (core) capital to
risk-weighted assets is at least 4%, and its ratio of core capital to total
assets is at least 4% (3% if the institution receives the highest CAMEL rating).
A bank that has lower ratios of capital is categorized as "undercapitalized,"
"significantly under capitalized," or "critically undercapitalized." Numerous
mandatory supervisory actions become immediately applicable to an
undercapitalized institution, including, but not limited to, increased
monitoring by regulators and restrictions on growth, capital distributions and
expansion.

The OCC's prompt corrective action powers can include, among other
things, requiring an insured depository institution to adopt a capital
restoration plan which cannot be approved unless guaranteed by the institution's
parent company; placing limits on asset growth and restrictions on activities;
including restrictions on transactions with affiliates; restricting the interest
rate the institution may pay on deposits; prohibiting the payment of principal
or interest on subordinated debt; prohibiting the bank from making capital
distributions without prior regulatory approval and, ultimately, appointing a
receiver for the institution. Among other things, only a "well capitalized"
depository institution may accept brokered deposits without prior regulatory
approval and only an "adequately capitalized" depository institution may accept
brokered deposits with prior regulatory approval. The OCC could also take any
one of a number of discretionary supervisory actions, including the issuance of
a capital directive and the replacement of senior executive officers and
directors.

Capital Guidelines. Under the risk-based capital guidelines applicable
to the Company and the Bank, the minimum guideline for the ratio of total
capital to risk-weighted assets (including certain off-balance sheet activities)
is 8.00%. At least half of the total capital must be "Tier 1" or core capital,
which primarily includes common shareholders' equity and qualifying preferred
stock, less goodwill and other disallowed intangible assets. "Tier 2" or
supplementary capital includes, among other items, certain cumulative and
limited-life preferred stock, qualifying subordinated debt and the allowance for
credit losses, subject to certain limitations, less required deductions as
prescribed by regulation.

In addition, the federal bank regulators established leverage ratio
(Tier 1 capital to total adjusted average assets) guidelines providing for a
minimum leverage ratio of 3% for bank holding companies and banks meeting
certain specified criteria, including that such institutions have the highest
regulatory examination rating and are not contemplating significant growth or
expansion. Institutions not meeting these criteria are expected to maintain a
ratio which exceeds the 3% minimum by at least 100 to 200 basis points. The
federal bank regulatory agencies may, however, set higher capital requirements
when particular circumstances warrant. Under the federal banking laws, failure
to meet the minimum regulatory capital requirements could subject a bank to a
variety of enforcement remedies available to federal bank regulatory agencies.

At December 31, 2005, the Bank's total and Tier 1 risk-based capital
ratios and leverage ratios exceeded the minimum regulatory capital requirements.
See Note 24 of the Notes to Consolidated Financial Statements included in the
Annual Report.

Item 1A. Risk Factors.
------------

The following is a summary of the material risks related to an
investment in the Company's securities.

The Bank's loan portfolio includes a substantial amount of commercial and
industrial loans and commercial real estate loans. The credit risk related to
these types of loans is greater than the risk related to residential loans.

The Bank's commercial and industrial and commercial real estate loan
portfolios totaled $1.73 billion at December 31, 2005, comprising 85.4% of total
loans. Commercial and industrial loans generally carry larger loan balances and
involve a greater degree of risk of nonpayment or late payment than home equity
loans or residential mortgage loans. Any significant failure to pay or late
payments by the Bank's customers would hurt the Bank's earnings. The increased
credit risk associated with these types of loans is a result of several factors,
including the concentration of principal in a limited number of loans and
borrowers, the size of loan balances, the effects of general economic conditions
on income-producing properties and the increased difficulty of evaluating and
monitoring these types of loans. A significant portion of the Bank's commercial
real estate and commercial and industrial loan portfolios includes a balloon
payment feature. A number of factors may affect a borrower's ability to make or
refinance a balloon payment, including the financial condition of the borrower,
the prevailing local economic conditions and the prevailing interest rate
environment.

Furthermore, the repayment of these loans is typically dependent upon
the successful operation of the related real estate or commercial project. If
the cash flow from the project is reduced, the borrower's ability to repay the
loan may be impaired. This cash flow shortage may result in the failure to make
loan payments. In such cases, the Bank may be compelled to modify the terms of
the loan. In addition, the nature of these loans is such that they are generally
less predictable and more difficult to evaluate and monitor. As a result,
repayment of these loans may to a greater extent than residential loans be
subject to adverse conditions in the real estate market or economy.

The concentration of the Bank's commercial and industrial loans and commercial
real estate loans in specific business sectors and geographic areas exposes it
to the risk of a possible economic downturn affecting those sectors and areas.

A significant portion of Bank's commercial and industrial loans and
commercial real estate loans are concentrated in the hospitality, entertainment
and leisure industries. Many of these industries are dependent upon seasonal
business and other factors beyond the control of the industries, such as weather
and beach conditions along the New Jersey seashore. Any significant or prolonged
adverse weather or beach conditions along the New Jersey seashore could have an
adverse impact on the borrowers' ability to repay loans. In addition, because
these loans are concentrated in southern and central New Jersey, a decline in
the general economic conditions of southern or central New Jersey could have a
material adverse effect on the Bank's financial condition, results of operations
and cash flows.

If the Bank has failed to provide an adequate allowance for loan losses, there
could be a significant negative impact on its earnings.

The risk of loan losses varies with, among other things, general
economic conditions, the type of loan being made, the creditworthiness of the
borrower over the term of the loan and, in the case of a collateralized loan,
the value of the collateral for the loan. Based upon factors such as historical
experience, an evaluation of economic conditions and a regular review of
delinquencies and loan portfolio quality, the Bank's management makes various
assumptions and judgments about the ultimate collectibility of the loan
portfolio and provides an allowance for loan losses. At December 31, 2005, the
Bank's allowance for loan losses was $22.5 million which represented 1.10% of
total loans and 221.9% of nonperforming loans. If management's assumptions and
judgments prove to be incorrect and the allowance for loan losses is inadequate
to absorb future credit losses, or if the bank regulatory authorities require
the Bank to increase its allowance for loan losses, its earnings could be
significantly and adversely affected.

The Company may not be able to achieve its growth plans or effectively manage
its growth.

The Company's ability to successfully grow depends on a variety of
factors including the continued availability of desirable acquisition and
business opportunities, the competitive responses from other financial
institutions in its market areas and its ability to integrate acquisitions and
otherwise manage its growth. There can be no assurance that growth opportunities
will be available or that growth will be successfully managed.

Competition from other financial institutions in originating loans, attracting
deposits and providing various financial services may adversely affect the
Company's earnings.

The market areas in which the Company operates are among the most
highly competitive in the country. There is substantial competition in
originating loans and in attracting and retaining deposits and competition is
increasing in intensity. The competition comes principally from other banks,
larger and smaller, savings institutions, credit unions, mortgage banking
companies and the myriad of nonbanking competitors, such as full service
brokerage firms, money market mutual funds, insurance companies and other
institutional lenders.

Ultimately, competition may adversely affect the rates the Company pays
on deposits and charges on loans, thereby potentially adversely affecting the
Company's profitability.

Changes in interest rates may reduce the Company's profits.

The most significant component of the Company's net income is net
interest, which accounted for 84.2% of total revenue in 2005 and 82.4% in 2004.
Net interest income is the difference between the interest income generated on
interest-earning assets, such as loans and investments and the interest expense
paid on the funds required to support earning assets, namely deposits and
borrowed funds. Interest income, which represents income from loans, investment
securities and short-term investments is dependent on many factors including the
volume of earning assets, the level of interest rates, the interest rate
sensitivity of the earning assets and the levels of nonperforming loans. The
cost of funds is a function of the amount and type of funds required to support
the earning assets, the rates paid to attract and retain deposits, rates paid on
borrowed funds and the levels of non-interest bearing demand deposits.

Interest rate sensitivity is a measure of how our assets and
liabilities react to changes in market interest rates. The Company expects that
this interest sensitivity will not always be perfectly balanced. This means that
either the Company's interest-earning assets will be more sensitive to changes
in market interest rates than its interest bearing liabilities, or vice versa.
If more interest-earning assets than interest -bearing liabilities reprice or
mature during a time when interest rates are declining, then the Company's net
interest income may be reduced. If more interest-bearing liabilities than
interest - earning assets reprice or mature during a time when interest rates
are rising, then the Company's net income may be reduced. At December 31, 2005,
total interest earning assets maturing or repricing within one year exceeded
interest-bearing liabilities maturing or repricing during the same period by
$226.9 million. As a result, the yield on its interest-earning assets should
adjust to changes in interest rates at a faster rate than the cost of its
interest-bearing liabilities and its net interest income may be reduced when
interest rates decrease significantly for long periods of time.

The Company manages its interest rate risk from changes in market rates
by controlling to the extent possible, the mix of interest sensitive assets and
interest rate sensitive liabilities. Commencing in mid 2004 and throughout 2005
the Federal Reserve Board increased short-term interest rates 13 times. In
general, when short-term rates increase, the Company expects improvements to net
interest income. However, the continuing flattening of the yield curve over this
period and into 2006 continues to put significant pressure on the Company's
ability to maintain or increase net interest income as the increasing funding
costs of either deposits or borrowings results in further interest spread
compression.

If the goodwill that the Company has recorded in connection with its
acquisitions becomes impaired, there could be a negative impact on the Company's
profitability.

Under the purchase method of accounting for all business combinations,
if the purchase price of an acquired company exceeds the fair value of the
company's net assets, the excess is carried on the acquiror's balance sheet as
goodwill and identifiable intangible assets. At December 31, 2005, the Company
had $134.8 of goodwill and identifiable intangible assets on its balance sheet.
With the acquisition of Advantage Bank on January 19, 2006, goodwill and
identifiable intangible assets increased by approximately $24 million. Companies
must evaluate goodwill for impairment at least annually. Write-downs of the
amount of any impairment are to be charged to the results of operations in the
period in which the impairment is determined. Based on tests of goodwill and
identifiable intangible assets impairment, the Company has concluded that there
has been no impairment during 2005 and 2004, and no write-downs have been
recorded. There can be no assurance that the future evaluations of goodwill and
identifiable intangible assets will not result in determinations of impairment
and write-downs.

Government regulation significantly affects the Company's business and
operations.

The Company and the banking industry are subject to extensive
regulation and supervision under federal and state laws and regulations. The
restrictions imposed by such laws and regulations limit the manner in which the
Company conducts its business.

Overall, these various statutes establish the corporate governance and
permissible business activities for Sun, acquisition and merger restrictions,
limitations on inter-company transactions, capital adequacy requirements, and
requirements for anti-money laundering programs and other compliance matters.
These regulations are designed primarily for the protection of the deposit
insurance funds, consumers and not to the benefit of the Company's shareholders.
Financial institution regulation has been the subject of significant legislation
in recent years and may continue to be the subject of further significant
legislation in the future, which is not in the control of the Company.
Significant new laws, or changes to existing laws could have a material adverse
effect on the Company's business, financial condition or results of operations.
Overall compliance with all the required statutes increases Sun's operating
expenses, requires a significant amount of management's attention and could be a
competitive disadvantage with respect to non-regulated competitors

The amount of common stock held by the Company's executive officers and
directors gives them significant influence over the election of the Company's
board of directors and other matters that require shareholder approval.

As of March 14, 2006, a total of 5.6 million shares, or approximately
29.5% of the Company's outstanding common stock, are beneficially owned by its
directors and executive officers, not including exercisable options. Therefore,
if they vote together, the Company's directors and executive officers have the
ability to exert significant influence over the election of the board of
directors and other corporate actions requiring shareholder approval, including
a tender offer, business combination or other transaction, or, the adoption of
proposals made by shareholders. As a result, shareholders who might desire to
participate in a takeover transaction may not have an opportunity to do so. The
effect of these provisions could be to limit the trading price potential of the
Company's common shares.

Item 1B. Unresolved Staff Comments.
-------------------------

None.

Item 2. Properties.
----------

At December 31, 2005, the Company operated from its main office in
Vineland, New Jersey and 75 Community Banking Centers. The Bank leases its main
office and 52 Community Banking Centers. The remainder of the community banking
centers is owned by the Bank.

Item 3. Legal Proceedings.
-----------------

The Company or the Bank is periodically involved in various claims and
lawsuits, such as claims to enforce liens, condemnation proceedings on
properties in which the Bank holds security interests, claims involving the
making and servicing of real property loans, and other issues incident to the
Company's and the Bank's business. While the ultimate outcome of these
proceedings cannot be predicated with certainty, management, after consultation
with counsel representing the Company in these proceedings, does not expect that
the resolution of these proceedings will have a material effect on the Company's
financial condition, results of operations or cash flows. In addition,
management was not aware of any pending or threatened material litigation as of
December 31, 2005.

Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------

No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year.

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
------------------------------------------------------------------------
Issuer Purchases of Equity Securities.
-------------------------------------

The information contained under the caption "Price Range of Common
Stock and Dividends" in the Company's 2005 Annual Report to Shareholders, filed
as Exhibit 13 to this Report (the "Annual Report"), is incorporated herein by
reference.

Item 6. Selected Financial Data.
-----------------------

The information contained under the caption "Selected Financial Data"
in the Company's Annual Report is incorporated herein by reference.

Item 7. Management's Discussion and Analysis of Financial Condition and Results
------------------------------------------------------------------------
of Operations.
-------------

The information contained under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the Company's
Annual Report is incorporated herein by reference.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
----------------------------------------------------------

The information contained under the captions "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Gap Analysis"
and " -- Net Interest Income Simulation" in the Company's Annual Report are
incorporated herein by reference.

Item 8. Financial Statements and Supplementary Data.
-------------------------------------------

The Consolidated Financial Statements of Sun Bancorp, Inc. and the
Summarized Quarterly Financial Data included in the notes thereto, included in
the Annual Report filed as Exhibit 13, are incorporated herein by reference.

Item 9. Changes in and Disagreements With Accountants On Accounting and
----------------------------------------------------------------------
Financial Disclosure.
--------------------

Not applicable.

Item 9A. Controls and Procedures.
-----------------------

(a) Disclosure Controls and Procedures

Based on their evaluation of the Company's disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934 (the "Exchange Act")), the Company's principal executive officer and
principal financial officer have concluded that as of the end of the period
covered by this Annual Report on Form 10-K such disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms and is accumulated and
communicated to the Company's management, including the principal executive and
principal financial officer, as appropriate to allow timely decisions regarding
required disclosures.

(b) Internal Control over Financial Reporting

1. Management's Annual Report on Internal Control Over Financial
Reporting.

Management's report on the Company's internal control over financial
reporting appears in the Company's Annual Report filed as Exhibit 13 and is
incorporated herein by reference.

2. Attestation Report of Independent Public Accounting Firm.

The attestation report of Deloitte & Touche LLP on management's
assessment of the Company's internal control over financial reporting appears in
the Company's Annual Report filed as Exhibit 13 and is incorporated herein by
reference.

3. Changes in Internal Control Over Financial Reporting.

During the last quarter of the year under report, there was no change
in the Company's internal control over financial reporting that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.

Item 9B. Other Matters.
--------------

None.

PART III

Item 10. Directors and Executive Officers of the Registrant.
--------------------------------------------------

The information contained under the sections captioned "Additional
Information About Directors and Executive Officers - Section 16(a) Beneficial
Ownership Reporting Compliance" and "Proposal I - Election of Directors" in the
Company's Proxy Statement for its 2006 Annual Meeting of Shareholders (the
"Proxy Statement") is incorporated herein by reference.

The Company has adopted a Code of Ethics and Conduct that applies to
its principal executive officer, principal financial officer, principal
accounting officer or controller or persons performing similar functions. A copy
of the Code of Ethics and Conduct is posted at the Company's website at
www.sunnb.com.

Item 11. Executive Compensation.
----------------------

The information contained under the section captioned "Director and
Executive Officer Compensation" in the Proxy Statement is incorporated herein by
reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and
----------------------------------------------------------------------
Related Stockholder Matters.
---------------------------

(a) Security Ownership of Certain Beneficial Owners

Information required by this item is incorporated herein by reference
to the section captioned "Voting Securities and Principal Holders Thereof" in
the Proxy Statement.

(b) Security Ownership of Management

Information required by this item is incorporated herein by reference
to the first table under the caption "Proposal I - Election of Directors" in the
Proxy Statement.

Management of the Registrant knows of no arrangements, including any
pledge by any person of securities of the Registrant, the operation of which may
at a subsequent date result in a change in control of the Registrant.

(d) Securities Authorized for Issuance Under Equity Compensation
Plans

Set forth below is information as of December 31, 2005 with respect to
compensation plans under which equity securities of the Registrant are
authorized for issuance.

EQUITY COMPENSATION PLAN INFORMATION

(a) (b) (c)

Number of securities
remaining available for
Weighted-average future issuance under
Number of securities to exercise price of equity compensation
be issued upon exercise outstanding options, plans (excluding
of outstanding options, warrants securities reflected in
warrants and rights and rights column (a))
------------------- ---------- -----------

Equity compensation plans
Approved by shareholders(1) 3,166,811 $10.11 315,195

Equity compensation plans
not approved by shareholders(2) -- -- --
--------- ------ -------

TOTAL 3,166,811 $10.11 315,195
========= ====== =======

- -----------------------
(1) Plans approved by shareholders include the 1995 Stock Option Plan, the 1997
Stock Option Plan, the 2002 Stock Option Plan and the 2004 Stock
Based-Incentive Plan. The amount of securities includes options for 318,594
shares of our common stock as a result of our assuming obligations under
stock option plans of Community Bancorp of New Jersey in connection with an
acquisition in 2004. While we assumed the obligations existing under these
plans as of the time of merger, we have not and will not in the future, use
them to make further grants.

(2) Not applicable.

Item 13. Certain Relationships and Related Transactions.
----------------------------------------------

The information contained under the section captioned "Additional
Information About Directors and Executive Officers - Certain Relationships and
Related Transactions" in the Proxy Statement is incorporated herein by
reference.

Item 14. Principal Accounting Fees and Services.
--------------------------------------

The information called for by this item is incorporated herein by
reference to the section captioned "Audit Fees and Services" in the Proxy
Statement.

PART IV

Item 15. Exhibits and Financial Statement Schedules.
------------------------------------------

(a) The following documents are filed as a part of this report:

(1) The following consolidated financial statements and the
report of independent registered public accounting firm of
the Registrant included in the Registrant's Annual Report to
Shareholders are incorporated herein by reference and also
in Item 8 hereof.

Report of Independent Public Accounting Firm
Consolidated Statements of Financial Condition as of
December 31, 2005 and 2004
Consolidated Statements of Income for the Years Ended
December 31, 2005, 2004 and 2003
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 2005, 2004 and 2003
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2005, 2004 and 2003
Notes to Consolidated Financial Statements

(2) There are no financial statements schedules that are
required to be included in Part II, Item 8.

(b) The following exhibits are filed as part of this report:

3(i) Amended and Restated Certificate of Incorporation of
Sun Bancorp, Inc.(1)
3(ii) Amended and Restated Bylaws of Sun Bancorp, Inc.(2)

10.1 1995 Stock Option Plan(3)
10.2 Amended and Restated 1997 Stock Option Plan(4)
10.3 2002 Stock Option Plan(5)
10.4 Directors Stock Purchase Plan(6)
10.5 Form of Change in Control Severance Agreement(7)
10.6 Severance Agreement between Thomas A. Bracken and Sun National Bank(8)
10.7 2004 Stock-Based Incentive Plan(9)
11 Computation regarding earnings per share(10)
13 2005 Annual Report to Shareholders
21 Subsidiaries of the Registrant
23 Consent of Deloitte & Touche LLP
31 Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

- ---------------------
(1) Incorporated by reference to Exhibit 3(i) to the Company's Registration
Statement on Form S-3 (File No. 333-109636) filed with the SEC on October
10, 2003.
(2) Incorporated by reference to Exhibit 3(ii) to the Company's Registration
Statement on Form S-3 (File No. 333-109636) filed with the SEC on October
10, 2003.

(3) Incorporated by reference to Exhibit 10 to the Company's Registration
Statement on Form 10 filed with the SEC on June 28, 1996 (File No.
0-20957).
(4) Incorporated by reference Exhibit 10.3 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999 (File No. 0-20957).
(5) Incorporated by reference to Appendix A to the Company's Proxy Statement
for the 2002 Annual Meeting of Shareholders filed with the SEC on April 16,
2002 (File No. 0-20957).
(6) Incorporated by reference to Exhibit 4.3 to the Registrant's Registration
Statement on Form S-8, filed with the SEC on August 1, 1997 (File No.
333-32681).
(7) Incorporated by reference to Exhibit 10.4 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2000 (File No. 0-20957).
(8) Incorporated by reference to Exhibit 10.6 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2000 (File No. 0-20957).
(9) Incorporated by reference to Exhibit H to the Company's Joint Proxy
Statement for the 2004 Annual Meeting of Shareholders in the Company's
Registration Statement on Form S-4, filed with the SEC on April 29, 2004
(File No. 0-20957).
(10) Incorporated by reference to Note 23 of the Notes to Consolidated Financial
Statements of the Company included in Exhibit 13 hereto.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized as of March 16, 2006.

SUN BANCORP, INC.

By: /s/Thomas A. Bracken
-----------------------------------------------
Thomas A. Bracken
President, Chief Executive Officer and Director
(Duly Authorized Representative)

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of March 16, 2006.

/s/Bernard A. Brown /s/Thomas A. Bracken
- ----------------------------------------------- -----------------------------------------------
Bernard A. Brown Thomas A. Bracken
Chairman President, Chief Executive Officer and Director
(Principal Executive Officer)

/s/Ike Brown /s/Sidney R. Brown
- ----------------------------------------------- -----------------------------------------------
Ike Brown Sidney R. Brown
Director Vice Chairman, Secretary and Treasurer

/s/Jeffrey S. Brown /s/John A. Fallone
- ----------------------------------------------- -----------------------------------------------
Jeffrey S. Brown John A. Fallone
Director Director

/s/Peter Galetto, Jr. /s/Douglas J. Heun
- ----------------------------------------------- -----------------------------------------------
Peter Galetto, Jr. Douglas J. Heun
Director Director

/s/Charles P. Kaempffer /s/Anne E. Koons
- ----------------------------------------------- -----------------------------------------------
Charles P. Kaempffer Anne E. Koons
Director Director

/s/Eli Kramer /s/Alfonse M. Mattia
- ----------------------------------------------- -----------------------------------------------
Eli Kramer Alfonse M. Mattia
Director Director

/s/George A. Pruitt /s/Anthony Russo, III
- ----------------------------------------------- -----------------------------------------------
George A. Pruitt Anthony Russo, III
Director Director

/s/Edward H. Salmon /s/Howard M. Schoor
- ----------------------------------------------- -----------------------------------------------
Edward H. Salmon Howard M. Schoor
Director Director

/s/Dan A. Chila
- -----------------------------------------------
Dan A. Chila
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)