UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 
20549  FORM 10-K  (Mark
One)  ý
  Annual
  Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934  [Fee Required]  For the
fiscal year
ended                    December
31, 2001 or  o
  Transition
  Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934  [No Fee Required]  For the
transition period from                          
to  Commission
File Number 0-14745  SUN BANCORP, INC. (SUN) (Exact name of registrant
as specified in its charter)  Pennsylvania
  
  23-2233584(State or other
  jurisdiction of incorporation or organization)
  
  (I.R.S. Employer
  Identification No.)2
  South Market Street, Selinsgrove, PA
  
  17870(Address of principal
  executive offices)
  
  (Zip Code)570-374-1131Registrants telephone
  number, including area code  Securities registered pursuant to Section 12(b) of the Act:  Title of each class
  
  Name of each exchange on which registeredNone
  
  None  Securities registered pursuant to
Section 12(g) of the Act:  Common stock, No Par Value (Title of Class)  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.ý
Yes  o
No  Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this Chapter) 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.ý  As of March 7, 2002, the Registrant had 7,138,816 shares of common
stock outstanding with a no par value. 
Based on the closing price of $17.00 on the same date, the aggregate
market value of the voting stock held by nonaffiliates of the Registrant was
$121,359,872.  Portions of the 2001 Annual Report to Shareholders are incorporated by
reference in Parts I, II, and III hereof.  Portions of the 2002 Proxy Statement for the Annual Shareholders
Meeting to be held on April 25, 2002 are incorporated by reference in Part III
hereof.  The index to exhibits included in this filing appears on page 5. 
   PART I ITEM 1 - BUSINESS  SUN BANCORP, INC. (SUN) is a holding company
incorporated under the laws of Pennsylvania and registered under the Bank
Holding Company Act of 1956, as amended, on November 26, 1982.  SUN acquired the Snyder County Trust Company
in June 1983 and The Watsontown National Bank in November 1987.  On December 1, 1993, the two banks merged
into one bank under the legal title of Sun Bank (Bank).  SUN also owns the Beacon Life Insurance
Company, a credit life and disability insurance company formed in 1993 as
Pennsylvania SUN Life Insurance Company and changed its legal title in
2001.  SUN is a limited partner in five
partnerships for the purpose of building, owning, and operating an affordable
elderly apartment complex in SUNs market area.  As part of the agreement, SUN is able to recognize tax credits
from this economic development project. 
On June 30, 1997, SUN acquired Bucktail Bank and Trust Company
(Bucktail) from FNB Corporation. 
Concurrently, Bucktail was merged into Sun Bank.  On October 4, 2000, Sun Bank changed its
legal title to SunBank and discontinued using the trade names Snyder County Trust
Company, Watsontown Bank, Central Pennsylvania Bank, and Bucktail Bank and
Trust Company.  On October 30, 2000, SUN
acquired seventy-five percent of Sun Abstract and Settlement Services for the
sum of $15,000 which represents the total investment.  During 2001, SUNs investment percentage was reduced to thirty
percent due to the addition of additional partners. On January 28, 2001, SUN
formed Sun Bancorp Statutory Trust I for the purpose of issuing trust preferred
securities.  On May 31, 2001, SUN acquired
Guaranty Bank, N.A., which was concurrently merged into SunBank.  On December 28, 2001, SUN formed SUBI
Investment Company, a Delaware corporation formed to hold certain investments.  SunBank, a state-chartered bank regulated by
Pennsylvania Banking Law, provides full service commercial and retail banking
services primarily in northeastern and central Pennsylvania.  SunBank operates 24 banking offices and one
trust services office serving Snyder, Union, Northumberland, Lycoming, and
Luzerne Counties.  At December 31, 2001,
SunBank had total assets of $917,970,000 and total shareholders equity of
$81,188,000.  Net income for 2001 was
$9,607,000.  SunBank offers a wide range of services including
demand deposit accounts, savings accounts, Christmas and all-purpose clubs,
time certificates of deposit, and individual retirement accounts, as well as
commercial loans, consumer loans, mortgage loans, investment products, and safe
deposit services.  SunBank also operates
a trust department that provides full fiduciary services.  Also, 45 Automated Teller Machines (ATMs)
and cash dispensing units throughout the service area provide 24-hour banking
service.  SunBanks activities are such
that the loss of one single customer or a few customers would not have a material
adverse effect on its operations. 
Additionally, SunBanks business is not seasonal in nature and does not
engage in foreign transactions.  The
majority of the loan portfolio is comprised of real estate loans and consumer
loans (predominately automobiles). 
SunBanks deposits are insured by the Federal Deposit Insurance
Corporation (FDIC) to the maximum extent allowed by law.  The Beacon Life Insurance Company (Beacon) provides
credit life and disability insurance to SunBanks credit customers.  Beacon is subject to supervision and
regulation by the Arizona Department of Insurance, the Insurance Department of
the Commonwealth of Pennsylvania, and the Board of Governors of the Federal
Reserve Bank.  At December 31, 2001,
Beacon had total assets of $893,000 and total shareholders equity of
$542,000.  Net income for 2001 was
$77,000.  Competition
continues to heighten in the financial services industry in northeastern and
central Pennsylvania not only among banks but also with savings and loan
associations, credit unions, discount brokerage firms, insurance companies, and
other nonbank financial service providers. 
Changing regulatory and economic conditions affect SUNs ability to
compete effectively in its market area. 
Most of the competition is centered around the setting of interest rates
to be charged on loans and rates paid on deposits, fees on deposit accounts,
and customer service.  SUNs management
feels it competes effectively in its market area.  2 
   SUN is subject to
regulation and supervision by the Board of Governors of the Federal Reserve
Bank and the Pennsylvania Department of Banking.  SUN files quarterly and annual reports with the Federal Reserve
Bank (FRB) of Philadelphia and periodic on-siteexams of SUN are done by the FRB.  Regular examinations of SunBank are
conducted by the FDIC and the Pennsylvania Department of Banking.  SUN and the Beacon
Life Insurance Company do not have any employees.  At December 31, 2001, SunBank employed 333 persons.  SunBank offers a variety of benefit programs
and feels its relationship with its employees is good.  ITEM 2 - PROPERTIES  SUNs corporate
office is located in SunBanks main banking office.  SUN owns all of its properties with the exception of an off-site
ATM at 700 North Broad Street; Selinsgrove; South Williamsport; Loyalsock; and
Lewisburg; which are leased.  In 1995,
SUN purchased parcels of land in Liverpool for the purpose of building a branch
in the future. In 2001, SunBank opened an office in Lewisburg.  In addition, SunBank purchased three Mellon
Bank branches: Lewisburg, Lock Haven, and Mill Hall.  SUN acquired Guaranty Bank, N.A. in 2001, and after the banks
merged, had additional offices in Mountain Top, Pikes Creek, Wilkes-Barre, Glen
Lyon, Shamokin, and Nanticoke. All properties are in good condition and
adequate for SunBanks purposes.  The
following is a list of the banking offices, the addresses, and a brief
description of each office.  Office
  
  Address
  
  Description1. Main
  
  2 South Market
  Street 
  Selinsgrove, Pennsylvania 17870
  
  Brick structure2. Shamokin Dam
  
  200 Susquehanna
  Trail 
  Shamokin Dam, Pennsylvania  17876
  
  Brick structure3. New Berlin
  
  Market &
  Plum Streets 
  New Berlin, Pennsylvania  17855
  
  Brick structure4. Sunbury
  
  11 South Second
  Street 
  Sunbury, Pennsylvania  17801
  
  Brick structure5. Middleburg
  
  Route 522 &
  Dock Hill Road 
  Middleburg, Pennsylvania  17842
  
  Brick structure6. Trust
  Division
  
  100 West Pine
  Street 
  Selinsgrove, Pennsylvania  17870
  
  Brick structure7. Automated
  Teller Machine
  
  108 West Pine
  Street 
  Selinsgrove, Pennsylvania  17870
  
  Brick structure8. Automated
  Teller Machine
  
  700 North Broad
  Street 
  Selinsgrove, Pennsylvania  17870
  
  Brick structure9. Watsontown
  
  300 Main Street 
  Watsontown, Pennsylvania  17777
  
  Brick structure10.
  Northumberland
  
  96 Duke Street 
  Northumberland, Pennsylvania  17857
  
  Brick structure11. Liverpool
  
  Rts. 11 & 15
  South 
  Liverpool, Pennsylvania  17045
  
  Land12. Hughesville
  
  2 South Main
  Street 
  Hughesville, PA  17737
  
  Brick structure13. Newberry
  
  2131 W. Fourth
  Street 
  Williamsport, PA  17701
  
  Brick structure14.
  Montoursville
  
  301 Broad Street
  
  Montoursville, PA  17754
  
  Brick structure15. Squire Hays
  
  3155 Lycoming
  Creek Road 
  Williamsport, PA  17701
  
  Stone and frame
  structure16. South
  Williamsport
  
  2 East Mountain
  Ave. S.
  Williamsport, PA  17702
  
  Brick structure17. Maynard
  Street
  
  90 Maynard
  Street
  Williamsport, PA  17701
  
  Brick structure18. Loyalsock
  
  814 Westminster
  Drive
  Williamsport, PA  17701
  
  Masonry Block19. Lewisburg
  
  141 Plaza 15
  Lewisburg, PA  17837
  
  Brick structure20. Lewisburg
  
  311 Market
  Street
  Lewisburg, PA  17837
  
  Brick and stone
  structure21. Lock Haven
  
  Bellefonte Ave
  & East Church Street
  Lock Haven, PA  17745
  
  Frame structure22. Mill Hall
  
  349 Main Street 
  Mill Hall, PA  17751
  
  Brick structure23. Mountain Top
  
  46 South
  Mountain Boulevard 
  Mountain Top, PA  18707
  
  Frame structure24. Pikes Creek
  
  Routes 118 &
  29 
  Pikes Creek, PA  18621
  
  Frame structure25. Wilkes-Barre
  
  639 South Main
  Street 
  Wilkes-Barre, PA  18702
  
  Brick and stone
  structure26. Glen Lyon
  
  18 East Main
  Street 
  Glen Lyon, PA  18617
  
  Brick and stone
  structure27. Shamokin
  
  10 South Market
  Street 
  Shamokin, PA  17872
  
  Brick structure28. Nanticoke
  
  35 East Main
  Street 
  Nanticoke, PA  18634
  
  Brick and stone
  structure  3 
   ITEM 3 - LEGAL PROCEEDINGS  Various legal
actions arise against the corporation in the normal course of business.  In the opinion of management and counsel,
when the actions that are currently pending or threatened against the
corporation are resolved, they should not have a material adverse effect on the
business or financial condition of the corporation.  ITEM 4 - SUBMISSION OF MATTERS TO A
VOTE OF SHAREHOLDERS  Not applicable  4 
   PART II  ITEM 5 - MARKET FOR THE REGISTRANTS COMMON STOCK AND RELATED
SHAREHOLDER MATTERS  The common stock of SUN BANCORP, INC. trades on the
NASDAQ national market system under the symbol SUBI.  As of March 7, 2002, SUN had approximately 2,222 holders of its
common stock.  SUN offers its
shareholders a Dividend Reinvestment Plan whereby holders of stock may have
their quarterly cash dividends automatically invested in additional shares of
common stock.  The payment of dividends by SUN is at the discretion
of the Board of Directors and to the extent funds are legally available for
that purpose.  SUN may not pay dividends
in any year in excess of the total of the current years net income and the
retained net income of the prior two years without the approval of the Federal
Reserve Bank.  Additionally, bank
regulations limit the amount of dividends that may be paid to SUN by the
subsidiary bank without prior approval from the regulatory agencies.  Additional stock information is incorporated by
reference to Shareholder Information found on page 52 of the 2001 Annual Report
to Shareholders.  ITEM 6 - SELECTED FINANCIAL DATA  This item is incorporated by reference to information
under the heading Five Year Financial Highlights on page 37 of the 2001 Annual
Report to Shareholders.  ITEM 7 -
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF 
OPERATIONS  This item is incorporated by reference to Managements
Discussion and Analysis on pages 38 through 51 of the 2001 Annual Report to
Shareholders.  ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  This item is incorporated by reference to Managements
Discussion and Analysis on pages 49 and 50 of the 2001 Annual Report to
Shareholders.  ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA  This item is incorporated by reference to the
Consolidated Financial Statements, Notes to Consolidated Financial Statements
and Independent Auditors Report set forth on pages 14 through 36 of the 2001
Annual Report to Shareholders.  ITEM 9 - CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE  None  5 
   PART III  ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT  Information concerning directors and executive officers
of the Registrant is incorporated herein by reference to Board of Directors on
page 5 of the Corporations 2002 Proxy Statement.  Section 16 (a) of the
Securities Exchange Act of 1934, as amended, requires the corporations
officers and directors, and persons who own more than ten percent of the
registered class of the corporations equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange
Commission.  Officers, directors and
greater than ten percent shareholders are required by SEC regulation to furnish
the corporation with copies of all Section 16 (a) forms they file.  Based on its review
of the copies of such forms received by it, and/or written statements received
from the respective individuals, the corporation believes that during the
period January 1, 2001 through December 31, 2001, its officers and directors
were in compliance with all filing requirements applicable to them.  ITEM 11 - EXECUTIVE COMPENSATION  Information relating to management remuneration and
compensation is incorporated herein by reference to Executive Compensation and
Other Information on page 14 of the 2002 Proxy Statement.  ITEM 12 - SECURITY OWNERSHIP OR CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT  This information is incorporated by reference to
Security Ownership of Directors and Executive Officers of the Corporation on
page 10 of the 2002 Proxy Statement.  ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS  This information
is incorporated by reference to footnote 15 onpage 30 of the 2001 Annual Report to
Shareholders and under the heading of Transactions with Management on page 20
of the 2002 Proxy Statement.  6 
   PART IV  ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K  (a) (1)      The following consolidated financial
statements and independent auditors report of SUN BANCORP, INC. and
subsidiaries included in the Annual Report to Shareholders for the year ended
December 31, 2001 are incorporated by reference in Part II, Item 8:  Consolidated Balance
Sheets - December 31, 2001 and 2000  Consolidated Statements
of Income - Years Ended December 31, 2001, 2000, and 1999  Consolidated Statements
of Changes in Shareholders Equity - Years Ended December 31, 2001, 2000, and
1999  Consolidated Statements
of Cash Flows - Years Ended December 31, 2001, 2000, and 1999  Notes to Consolidated
Financial Statements  Independent Auditors
Report  (2)     All schedules applicable to the Registrant
are shown in the respective financial statements or the notes thereto.  Financial statement schedules not included
are omitted because the information is not required under the related
instructions or it is inapplicable.  (3)     Exhibits  3 (i)         The Articles of
Incorporation of the Corporation are incorporated herein by reference to
Exhibit 3 to the Corporations Registration Statement on Form S-8 filed with
the Securities and Exchange Commission on August 12, 1998 (Commission File
Number 0-14745).  3 (ii)        The By-Laws, as
amended and restated, are incorporated herein by reference to Exhibit 3 to the
Corporations Annual Report on Form 10-K for the year ended December 31, 1993
(Commission File Number 0-14745).  10            Employment
agreement between Robert J.  McCormack
and SUN BANCORP. INC. and SunBank dated March 1, 2002.  13            Annual Report
to Shareholders of SUN BANCORP, INC. for the year ended December 31, 2001 is
filed herewith.  The report, except for
those portions thereof which are expressly incorporated by reference herein, is
furnished for information of the Securities and Exchange Commission only and it
is not considered filed as part of the Form 10-K filing.  21            Subsidiaries of
the Registrant.  22            Published
Report Regarding Matters Submitted To Vote Of Shareholders is incorporated by
reference to the 2002 Definitive Proxy Statement of SUN BANCORP, INC.  23            Consent of
Independent Auditors.   (b)           No reports on
Form 8-K were required to be filed during the fourth quarter of 2001.  (c)           Exhibits - the
required exhibits are included under Item 14 (a) (3) of the Form 10-K.  (d)           Financial
statement schedules are omitted because the required information is not
applicable or is included elsewhere herein.  7 
   SIGNATURES  Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, SUN BANCORP, INC. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.  SUN BANCORP, INC.(Registrant)Date:
  3/22/02
  
  By:
  /s/ Robert J. McCormackRobert J. McCormackPresident and Chief Executive Officer(Principal Executive Officer)Date:
  3/22/02
  
  By:
  /s/ Jonathan J. HullickJonathan J.
  HullickExec. VP, Chief
  Operating Officer & Chief Financial Officer(Principal
  Financial Officer and Principal Accounting Officer)  Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed on behalf of the Registrant and in the capacities
and on the dates indicated.  8 
   Name
  
  Date/s/ Fred W. Kelly, Jr.
  
  3/22/02Fred W. Kelly, Jr.Chairman of the Board/s/ Robert J. McCormack
  
  3/22/02Robert J. McCormackPresident, Chief Executive Officer, and
  Director/s/ Martha A. Barrick
  
  3/22/02Martha A. Barrick, Director/s/ Max E. Bingaman
  
  3/22/02Max E. Bingaman, Director/s/ Maureen M. Bufalino
  
  3/22/02Maureen M. Bufalino, Director/s/ David R. Dieck
  
  3/22/02David R. Dieck, Director/s/ Louis A. Eaton
  
  3/22/02Louis A. Eaton, Director/s/ M. Mitchell Fetterolf
  
  3/22/02M. Mitchell Fetterolf, Director/s/ Stephen J. Gurgovits
  
  3/22/02Stephen J. Gurgovits, Director/s/ Thomas B. Hebble
  
  3/22/02Thomas B. Hebble, Director/s/ Robert A. Hormell
  
  3/22/02Robert A. Hormell, Director/s/ Paul R. John
  
  3/22/02Paul R. John, Director/s/ George F. Keller
  
  3/22/02George F. Keller, Director/s/ George E. Logue, Jr.
  
  3/22/02George E. Logue, Jr., Director/s/ Marlin T. Sierer
  
  3/22/02Marlin T. Sierer, Director/s/ Dennis J. Van
  
  3/22/02Dennis J. Van, Director  9 
   Subsidiaries of SUN BANCORP,
INC.  The following table sets forth the subsidiaries of the Registrant at
December 31, 2001.  Name
  
  Organized Under the Laws ofSunBank
  Selinsgrove, PA 
  Wholly Owned
  
  Commonwealth of
  PennsylvaniaBeacon Life
  Insurance Company 
  Phoenix, AZ 
  Wholly Owned
  
  State of ArizonaSun Bancorp
  Statutory Trust I 
  Hartford, CT 
  Wholly Owned
  
  State of ConnecticutSUBI Investment
  Company 
  Wilmington, DE 
  Wholly Owned
  
  State of DelawareSun Abstract and
  Settlement Services 
  Selinsgrove, PA 
  Thirty Percent Owned
  
  Commonwealth of
  Pennsylvania  10 
   CONSENT OF INDEPENDENT
AUDITORS  We hereby consent to the incorporation by reference in this annual
report on  Form 10-K of Sun Bancorp,
Inc. for the year ended December 31, 2001 of our  report dated February 19, 2002 which appears on page 36 of the
annual report to  shareholders for the
year ended December 31, 2001. /s/ Parente Randolph, PCWilliamsport, PennsylvaniaMarch 22, 2002  11 
   Consolidated Balance
Sheets (In Thousands, Except for
Share Data)  December
  31,2001
  
  2000AssetsCash and due
  from banks
  
  $
  24,125
  
  $
  13,138Interest-bearing
  deposits in banks
  
  20,858
  
  2,139Total cash and
  cash equivalents
  
  44,983
  
  15,277Investment
  securities
  
  305,612
  
  290,513Loans, net
  
  515,520
  
  406,775Bank premises
  and equipment, net
  
  14,462
  
  10,895Intangible
  asset, goodwill, net
  
  14,018
  
  8,682Intangible
  asset, core deposit intangible, net
  
  8,755
  
  Accrued interest
  
  5,063
  
  3,331Other assets
  
  12,442
  
  8,115Total assets
  
  $
  920,855
  
  $
  743,588Liabilities and
  Shareholders EquityDeposits:Noninterest-bearing
  
  $
  57,990
  
  $
  39,164Interest-bearing
  
  515,887
  
  405,402Total deposits
  
  573,877
  
  444,566Short-term
  borrowings
  
  22,138
  
  9,582Other borrowed
  funds
  
  222,000
  
  222,000Subordinated
  debentures
  
  20,444
  
  Accrued interest
  and other liabilities
  
  4,885
  
  4,913Total
  liabilities
  
  843,344
  
  681,061Shareholders
  equity:Common stock, no
  par value per share;
  20,000,000 authorized shares; issued 7,236,251 in 2001 and 7,227,093 in 2000
  
  83,565
  
  81,632Retained
  earnings (deficit)
  
  (6,961
  )
  (11,177
  )Accumulated
  other comprehensive income (loss)
  
  2,069
  
  (1,591
  )Less: Treasury
  stock at cost, 93,417 shares in 2001 and 566,440 shares in 2000
  
  (1,162
  )
  (6,337
  )Total
  shareholders equity
  
  77,511
  
  62,527Total
  liabilities and shareholders equity
  
  $
  920,855
  
  $
  743,588  12 
   Consolidated Statements of Income (In Thousands, Except for Net Income Per Share)  Years Ended December 31,2001
  
  2000
  
  1999Interest and dividend income:Interest and
  fees on loans
  
  $
  38,603
  
  $
  33,964
  
  $
  29,841Income from
  available for sale securities:Taxable
  
  17,089
  
  16,805
  
  14,642Tax exempt
  
  1,137
  
  967
  
  1,818Dividends
  
  1,520
  
  1,396
  
  997Interest on
  deposits in banks and other financial institutions
  
  1,345
  
  428
  
  156Total interest
  and dividend income
  
  59,694
  
  53,560
  
  47,454Interest
  expense:Interest on
  deposits
  
  21,164
  
  18,075
  
  14,880Interest on
  short-term borrowings
  
  430
  
  853
  
  843Interest on
  other borrowed funds
  
  12,787
  
  12,897
  
  10,507Interest on
  subordinated debentures
  
  1,578
  
  
  
  Total interest
  expense
  
  35,959
  
  31,825
  
  26,230Net interest
  income
  
  23,735
  
  21,735
  
  21,224Provision for
  loan and lease losses
  
  1,500
  
  2,500
  
  1,925Net interest
  income after provision for loan and lease losses
  
  22,235
  
  19,235
  
  19,299Other operating
  income:Service charges
  on deposit accounts
  
  1,903
  
  1,315
  
  1,213Trust income
  
  745
  
  897
  
  722Net securities gains
  (losses)
  
  844
  
  (1,955
  )
  1,962Income from
  investment product sales
  
  309
  
  
  
  Income from
  insurance subsidiary
  
  183
  
  270
  
  223Gain on sale of
  branches
  
  4,892
  
  
  
  Other income
  
  632
  
  457
  
  840Total other
  operating income
  
  9,508
  
  984
  
  4,960Other operating
  expenses:Salaries and
  employee benefits
  
  9,680
  
  7,319
  
  6,204Net occupancy
  expenses
  
  995
  
  660
  
  653Furniture and
  equipment expenses
  
  1,745
  
  1,184
  
  1,038Pennsylvania
  shares tax
  
  699
  
  600
  
  553Amortization of
  intangibles
  
  1,567
  
  755
  
  755Expenses of
  insurance subsidiary
  
  110
  
  190
  
  129Other expenses
  
  5,253
  
  3,387
  
  2,747Total other
  operating expenses
  
  20,049
  
  14,095
  
  12,079Income before
  income tax provision
  
  11,694
  
  6,124
  
  12,180Income tax
  provision
  
  3,344
  
  1,526
  
  3,425Net income
  
  $
  8,350
  
  $
  4,598
  
  $
  8,755Net income per
  share  Basic
  
  $
  1.20
  
  $
  0.68
  
  $
  1.28Net income per
  share  Diluted
  
  $
  1.20
  
  $
  0.68
  
  $
  1.28  13 
   Consolidated Statements of Changes in Shareholders Equity (In Thousands, Except for Share Data) Years Ended
December 31, 2001, 2000 and 1999  Common
  Stock Shares
  
  Amount
  
  Retained
  Earnings
  (Deficit)
  
  Accumulated
  
  Other 
  Comprehensive 
  Income (Loss)
  
  Treasury
  Stock
  
  Total
  Shareholders
  EquityBalance,
  December 31, 1998
  
  6,860
  
  $
  72,913
  
  $
  (4,949
  )
  $
  2,016
  
  $
  (2,179
  )
  $
  67,801Comprehensive
  loss:Net income
  
  
  
  
  
  8,755
  
  
  
  
  
  8,755Unrealized
  losses on securities available for sale, net of reclassification adjustments
  and tax effects
  
  
  
  
  
  
  
  (12,683
  )
  
  
  (12,683
  )Total
  comprehensive loss
  
  
  
  
  
  
  
  
  
  
  
  (3,928
  )Stock issued:Stock dividends
  
  332
  
  8,169
  
  (8,169
  )
  
  
  
  
  Employee benefit
  plans
  
  27
  
  398
  
  
  
  
  
  
  
  398Purchase of
  treasury stock (87,932 shares)
  
  
  
  
  
  
  
  
  
  (2,163
  )
  (2,163
  )Cash dividends
  declared, $.90 per share
  
  
  
  
  
  (6,135
  )
  
  
  
  
  (6,135
  )Tax benefit of
  exercised stock options
  
  
  
  40
  
  
  
  
  
  
  
  40Balance,
  December 31, 1999
  
  7,219
  
  81,520
  
  (10,498
  )
  (10,667
  )
  (4,342
  )
  56,013Comprehensive
  income:Net income
  
  
  
  
  
  4,598
  
  
  
  
  
  4,598Unrealized gains
  on securities available for sale, net of reclassification adjustments and tax
  effects
  
  
  
  
  
  
  
  9,076
  
  
  
  9,076Total
  comprehensive income
  
  
  
  
  
  
  
  
  
  
  
  13,674Stock issued:Employee benefit
  plans
  
  8
  
  112
  
  
  
  
  
  
  
  112Purchase of
  treasury stock (140,391 shares)
  
  
  
  
  
  
  
  
  
  (1,995
  )
  (1,995
  )Cash dividends
  declared, $.78 per share
  
  
  
  
  
  (5,277
  )
  
  
  
  
  (5,277
  )Balance,
  December 31, 2000
  
  7,227
  
  81,632
  
  (11,177
  )
  (1,591
  )
  (6,337
  )
  62,527Comprehensive
  income:Net income
  
  
  
  
  
  8,350
  
  
  
  
  
  8,350Unrealized gains
  on securities available for sale, net of reclassification adjustments and tax
  effects
  
  
  
  
  
  
  
  3,660
  
  
  
  3,660Total
  comprehensive income
  
  
  
  
  
  
  
  
  
  
  
  12,010Stock issued:Employee benefit
  plans
  
  9
  
  123
  
  
  
  
  
  
  
  123Purchase of
  Guaranty Bank, N.A. (553,558 treasury shares)
  
  
  
  1,810
  
  
  
  
  
  6,388
  
  8,198Purchase of
  treasury stock (80,535 shares)
  
  
  
  
  
  
  
  
  
  (1,213
  )
  (1,213
  )Cash dividends
  declared, $.60 per share
  
  
  
  
  
  (4,134
  )
  
  
  
  
  (4,134
  )Balance,
  December 31, 2001
  
  7,236
  
  $
  83,565
  
  $
  (6,961
  )
  $
  2,069
  
  $
  (1,162
  )
  $
  77,511   14 
   Consolidated Statements of Cash Flows (In Thousands)  Years Ended December 31,2001
  
  2000
  
  1999Cash flows from operating activities:Net income
  
  $
  8,350
  
  $
  4,598
  
  $
  8,755Adjustments to
  reconcile net income to net cash (used in) provided by operating activities:Provision for
  loan and lease losses
  
  1,500
  
  2,500
  
  1,925Provision for
  depreciation
  
  977
  
  812
  
  715Amortization of
  intangibles
  
  1,567
  
  755
  
  755Amortization and
  accretion of securities, net
  
  418
  
  90
  
  253Deferred income
  tax
  
  (305
  )
  (349
  )
  2Net securities
  (gains) losses
  
  (844
  )
  1,955
  
  (1,962
  )Gain on sale of
  branches
  
  (4,892
  )
  
  
  Gain on sale of
  bank premises and equipment
  
  (71
  )
  
  
  Net change in
  other assets and liabilities
  
  (7,016
  )
  (2,217
  )
  1,142Net cash (used in)
  provided by operating activities
  
  (316
  )
  8,144
  
  11,585Cash flows from
  investing activities:Proceeds from
  sales of investment securities
  
  43,252
  
  71,024
  
  37,104Proceeds from
  maturities of investment securities
  
  109,051
  
  31,622
  
  29,497Cash acquired
  from branch acquisitions
  
  92,852
  
  
  
  Cash paid from
  sale of branches
  
  (32,431
  )
  
  
  Purchases of
  investment securities
  
  (135,464
  )
  (98,836
  )
  (111,945
  )Net increase in
  loans
  
  (59,981
  )
  (30,472
  )
  (53,345
  )Proceeds from
  sale of branches
  
  4,892
  
  
  
  Proceeds from
  sale of bank premises and equipment
  
  222
  
  
  
  Capital
  expenditures
  
  (596
  )
  (1,165
  )
  (2,118
  )Net cash
  provided by (used in) investing activities
  
  21,797
  
  (27,827
  )
  (100,807
  )Cash flows from
  financing activities:Net (decrease)
  increase in deposits
  
  (8,557
  )
  44,445
  
  36,235Net increase
  (decrease) in short-term borrowings
  
  5,506
  
  (26,384
  )
  10,216Proceeds from
  other borrowed funds
  
  
  
  100,000
  
  75,000Repayments of
  other borrowed funds
  
  
  
  (92,000
  )
  (22,500
  )Proceeds from
  issuance of subordinated debentures
  
  16,500
  
  
  
  Cash dividends
  paid
  
  (4,134
  )
  (5,277
  )
  (6,135
  )Proceeds from
  sale of stock for employee benefits program
  
  123
  
  112
  
  398Purchase of
  treasury stock
  
  (1,213
  )
  (1,995
  )
  (2,163
  )Net cash
  provided by financing activities
  
  8,225
  
  18,901
  
  91,051Net increase
  (decrease) in cash and cash equivalents
  
  29,706
  
  (782
  )
  1,829Cash and cash
  equivalents at beginning of year
  
  15,277
  
  16,059
  
  14,230Cash and cash
  equivalents at end of year
  
  $
  44,983
  
  $
  15,277
  
  $
  16,059Supplemental
  disclosure of cash flow information:Interest paid
  
  $
  34,598
  
  $
  31,825
  
  $
  25,769Income taxes
  paid
  
  $
  2,450
  
  $
  2,239
  
  $
  3,550  Supplemental schedule of
noncash investing and financing activities:  Loans with an estimated
value of $837 in 2001 and $494 in 2000, were reclassified to foreclosed assets
held for sale.  The tax benefit of
exercised stock options of $40 in 1999 was credited to common stock.  The net cash acquired in
the amount of $60,421 from the acquisition of Guaranty Bank, N.A. and three
Mellon Bank branches, offset by the sale of two SunBank branches resulted in
the recording of the following:  Asset:
  
  
  
  Liabilities
  and Shareholders Equity:Investments
  
  $
  25,967
  
  Deposits
  
  $
  137,868Loans
  
  51,101
  
  Short-term borrowings
  
  7,050Bank premise and equipment
  
  4,099
  
  Subordinated debentures
  
  3,944Intangible assets
  
  15,658
  
  Accrued interest and other liabilities
  
  1,458Accrued interest andother assets
  
  1,272
  
  Common stock
  
  1,810Treasury stock reduction
  
  6,388Total
  
  $
  98,097
  
  Total
  
  $
  158,518  15 
   Notes to Consolidated Financial
Statements 1. Summary of Significant Accounting Policies Sun Bancorp, Inc. and subsidiaries (Sun) accounting and financial
reporting policies conform with accounting principles generally accepted in the
United States of America and with general financial industry practices. Certain
prior year amounts were reclassified to conform to current year
classifications. The following summary addresses the most significant policies:  Consolidation Basis Consolidated financial statements include the accounts of Sun Bancorp,
Inc. (parent company) and its wholly owned subsidiaries: SunBank (Bank), SUBI
Investment Company, Sun Trust I, and Beacon Life Insurance Company (Beacon).
Sun also holds thirty percent ownership in Sun Abstract and Settlement Services
(Sun Abstract). Beacons and Sun Abstracts transactions are not material to
the consolidated financial statements. All significant intercompany balances
and transactions have been eliminated in consolidation.  Operations Sun provides a full-range of community and commercial banking services
through 24 SunBank offices in northeast and central Pennsylvania. SunBanks
primary deposit products include checking, savings, money market, and
certificate of deposit accounts. SunBanks primary loan products include
commercial loans, consumer loans, and single-family residential mortgages.  Use of Estimates In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheets, the disclosed amounts of contingent
assets and liabilities as of the date of the balance sheets, and the reported
amounts of revenues and expenses for the periods presented. Actual results
could differ significantly from those estimates. In particular, management
relies on estimates and assumptions when determining an adequate allowance for
loan and lease losses. Refer to the heading Allowance for Loan and Lease
Losses (ALLL) in Note 1 for additional information.  Investment Securities Sun reports all securities, including debt instruments, restricted
equities, and unrestricted equities as available for sale. Except for
restricted equities, Sun reports all securities at fair value. Unrealized gains
or losses, net of tax, are excluded from earnings and reported as a component
of accumulated other comprehensive income (loss) within shareholders equity.
Restricted equities consist primarily of Federal Home Loan Bank of Pittsburgh
(FHLB) stock, which is carried at cost and evaluated for impairment. Management
estimates fair values based on bid prices from securities dealers when
available. When bid prices are not available, management relies on standard
economic value models. For certain instruments neither bid prices or economic
value models are available, so management estimates fair value based on
observable market prices for instruments with similar cash flow and risk
characteristics.  Premium amortization and discount accretion are recorded using the
level yield method over each securitys remaining contractual or expected life
(whichever is shorter), adjusted for actual prepayment experience. Realized
gains and losses from securities sales are computed based on each securitys
specific carrying value.  Loans and Leases Sun recognizes loan and lease interest income using the accrual method
applied to outstanding principal. Sun does not recognize interest income when
management believes collection is doubtful. When management designates a loan
as nonaccrual, accrued interest receivable is generally charged against current
earnings. Designation as nonaccrual does not necessarily imply a potential
principal charge-off. Sun generally does not recognize interest income on
specific loans designated as impaired, unless management has determined further
loss potential to be remote. Generally, Sun applies interest payments received
on impaired loans to reduce loan principal. Loan fees and origination costs are
deferred and recognized over each loans expected life. Management uses the
interest method to report those amounts as interest and fees on loans.  Loan Servicing Mortgage loans serviced for others are not included in Suns
consolidated balance sheets. Unpaid principal of mortgage loans serviced for
others totaled $20,769,000 at December 31, 2001, and $23,286,000 at December
31, 2000. Capitalized mortgage servicing rights (MSRs), included with other
assets in the consolidated balance sheets, totaled approximately $36,000 at
December 31, 2001, and $44,000 at December 31, 2000.  Sun records MSRs at fair value and amortizes the balance over the
period of estimated net servicing income or loss. Sun relies on a valuation
model to calculate the net present value of expected future cash flows that
determines the MSRs fair value. Suns valuation model incorporates assumptions
market participants might use to estimate future net servicing income,
including loan types, interest rates, servicing costs, prepayment speeds, and
discount rates. Using this model, Sun periodically evaluates the MSRs value
for impairment.  Allowance for Loan and Lease Losses (ALLL) Suns ALLL is funded through periodic provisions for loan and lease
losses, and that provision is reported as an expense in current income. Loan
losses are charged against the ALLL in the period in which they have been
determined to be uncollectible. Recoveries of previously charged off loans are
credited to the allowance as they are received. Management funds the ALLL at a
level it believes will be adequate to absorb potential losses in the existing
loan portfolio. Management believes the ALLL is adequate at December 31, 2001.  16 
   Suns loan portfolio consists primarily of residential mortgage loans
and commercial loans concentrated in northeast and central Pennsylvania
(Lycoming, Snyder, Union, Northumberland and Luzerne counties). These regions
economy depend on the manufacturing and service industries. Unemployment is
currently below the state average and real estate values are firm.  Managements analysis incorporates many factors, including current
economic conditions, loss experience, loan portfolio composition, and
anticipated losses. For significant real estate properties, management obtains
independent value appraisals. Management also retains consultants to
periodically review loan quality, which augments ALLL analysis.  However, unforeseen developments may require management to increase the
ALLL. Such developments could include changing economic conditions or negative
developments with borrowers. In addition, bank regulators periodically assess
Suns ALLL and may, consistent with examination guidelines and current
information, require an increased ALLL. As a result, any number of factors may
materially change managements analysis in the future.  Foreclosed Assets Sun classifies all foreclosed assets as held for sale and reports
foreclosed assets at the lower of cost or fair value (less estimated selling
costs). Foreclosed assets, which are included with other assets in the
consolidated balance sheets, totaled $940,000 at December 31, 2001, and $216,000
at December 31, 2000.  Premises and Equipment Sun reports premises and equipment at cost less accumulated
depreciation. Depreciation expense is computed and recognized using the
straight-line method. Sun generally expenses repair and maintenance expenditures
as incurred, and capitalizes such expenditures only when they extend an assets
useful life. When Sun retires or sells premises or equipment, remaining cost
and accumulated depreciation are removed from the account and any gain or loss
is reported in current income.  Intangible Assets Suns goodwill represents the excess cost of acquired assets relative
to those assets fair value. Sun amortizes goodwill using the straight-line
method and 15-20 year lives. Sun periodically evaluates the goodwill carrying
value for impairment based on fair value of non-discounted operating cash
flows. Suns goodwill results from the acquisition of Bucktail Bank and Trust
Company (Bucktail) in 1997, and Guaranty Bank N.A. in 2001.  Suns core deposit intangible represents the premium paid for deposits
from the acquisition of three former Mellon Bank, N.A. branches in 2001.  Sun amortizes the core deposit intangible
using the straight-line method and a 10 year life.  Amortization of intangibles totaled $1,567,000 in 2001 and $755,000 in
2000 and 1999. Management believes no material impairment of intangibles exists
at December 31, 2001.  Investment in Limited Partnerships Sun is a limited partner in five partnerships at December 31, 2001, and
three partnerships at December 31, 2000, that provide low income elderly
housing in Suns market. Suns book value of these investments was $4,070,000
at December 31, 2001 and $3,125,000 at December 31, 2000. Sun is amortizing the
investment in each partnership to 50% of the original investment over the life
of the tax credits generated by the investment. The amortization of the limited
partnership investments totaled $177,000 in 2001, $127,000 in 2000, and $29,000
in 1999.  Income Taxes Sun provides for deferred income taxes as a result of temporary
differences between the financial reporting and income tax accounting methods.
Theses differences primarily involve timing differences for recognition of loan
and lease losses, depreciation, deferred compensation, and loan fee income.  Off-Balance Sheet Financial
Instruments In the ordinary course of business, Sun enters into off-balance sheet
financial instruments. Those instruments consist of commitments to extend
credit and standby letters of credit. When those instruments are funded or
become payable, Sun reports the amounts in its financial statements. Sun has
not entered into any other off-balance sheet derivative instruments.  Cash Flows Sun uses net reporting of cash receipts and payments for certain
deposit and lending activities. Cash equivalents include cash and due from
banks and interest-bearing deposits in banks. Federal funds and other overnight
borrowings are purchased and sold within a one-day period.  Trust Assets and Income Assets held in a fiduciary or agency capacity are not Suns assets and
are excluded from Suns consolidated financial statements. Trust income is
reported on the accrual basis for 2001 and 2000 and was reported on the cash
basis for 1999. The difference between the accrual basis and cash basis for trust
income recognition was not material in 1999.  17 
   2. Purchase of Guaranty Bank, N.A. On May 31, 2001, Sun acquired Guaranty Bank, N.A. (Guaranty), a local
bank headquartered in Wilkes-Barre, Pennsylvania. Suns results of operations
for 2001 include Guarantys results of operations from May 31, 2001 through
December 31, 2001. The acquisition, which has been accounted for as a purchase,
resulted in a cash payment of $2,544,000, issuing a subordinated debenture of
$3,944,000, and 553,558 shares of Sun common stock (formerly held as treasury
stock) valued at $8,198,000 in exchange for all of the outstanding shares of
Guaranty.  The total cost of this acquisition was $14,686,000. Goodwill in the
amount of $6,291,000 was recorded and is being amortized using the
straight-line method over a period of 20 years.  3. Net Income Per Share Net income per share is computed based on the weighted average number
of shares of stock outstanding for each year presented. Statement of Financial
Accounting Standards (SFAS) No. 128, Earnings Per Share, requires
presentation of two amounts; basic and diluted net income per share.  The number of shares used in calculating net income per share and
dividends per share for 1999 reflect the retroactive effect of a 5% stock
dividend in the second quarter of 1999. The following data shows the amounts
used in computing net income per share and the weighted average number of
shares of dilutive stock options:  Income
  Numerator
  
  Common
  Shares
  Denominator
  
  Net Income
  Per Share2001Net income per
  share  Basic
  
  $
  8,350,000
  
  6,942,122
  
  $
  1.20Dilutive effect
  of potential common stock arising from stock options:Exercise of
  options outstanding
  
  
  
  236,334Hypothetical
  share repurchase at $15.63
  
  
  
  (232,952
  )Net income per
  share  Diluted
  
  $
  8,350,000
  
  6,945,504
  
  $
  1.202000Net income per
  share  Basic
  
  $
  4,598,000
  
  6,769,924
  
  $
  0.68Dilutive effect
  of potential common stock arising from stock options:Exercise of
  options outstanding
  
  
  
  112,952Hypothetical
  share repurchase at $15.13
  
  
  
  (98,614
  )Net income per
  share  Diluted
  
  $
  4,598,000
  
  6,784,262
  
  $
  0.681999Net income per
  share  Basic
  
  $
  8,755,000
  
  6,813,956
  
  $
  1.28Dilutive effect
  of potential common stock arising from stock options:Exercise of
  options outstanding
  
  
  
  238,137Hypothetical
  share repurchase at $23.41
  
  
  
  (191,979
  )Net income per
  share  Diluted
  
  $
  8,755,000
  
  6,860,114
  
  $
  1.28  4.
Comprehensive Income (Loss) Accounting principles generally require recognized revenues, expenses,
gains, and losses be included in net income. Certain changes in assets and
liabilities, including unrealized gains and losses on available for sale
securities, are reported as a separate equity component and as components of
comprehensive income (loss). Other comprehensive income (loss) components and
related tax effects were:  Years
  Ended December 31,(In Thousands)
  
  2001
  
  2000
  
  1999Unrealized
  holding gains (losses) on available for sale securities
  
  $
  6,389
  
  $
  11,797
  
  $
  (17,255
  )Less:
  Reclassification adjustment for (gains) losses realized in income
  
  (844
  )
  1,955
  
  (1,962
  )Net unrealized
  gains (losses)
  
  5,545
  
  13,752
  
  (19,217
  )Income tax
  (expense) benefit
  
  (1,885
  )
  (4,676
  )
  6,534Net
  
  $
  3,660
  
  $
  9,076
  
  $
  (12,683
  )  18 
   5.
Restrictions on Cash and Due From Bank Accounts Based on deposit levels, Sun must maintain cash and other reserves with
the Federal Reserve Bank of Philadelphia (FRB). Those reserves averaged
$1,186,000 in 2001, $800,000 in 2000, and $619,000 in 1999. In 1999, Sun
implemented account analysis systems, which enable reclassification of
transaction accounts to non-transaction accounts. This reclassification reduced
the required reserve amount for 2001 and 2000. These reserves were $1,175,000
at December 31, 2001 and $681,000 at December 31, 2000.  Deposits maintained at each financial institution are insured by the
Federal Deposit Insurance Corporation (FDIC) up to $100,000. Sun maintains cash
and cash equivalents with financial institutions in excess of the insured
amount.  6. Investment Securities Suns entire investment portfolio is classified as available for sale.
The amortized cost and fair value of investment securities at December 31, 2001
and 2000 are shown below:  (In Thousands)
  
  Amortized
  Cost
  
  Unrealized
  Gains
  
  Unrealized
  Losses
  
  Fair
  ValueDecember 31, 2001Debt securities:Obligations of
  U.S. government agencies
  
  $
  258,234
  
  $
  3,982
  
  $
  (557
  )
  $
  261,659Obligations of
  states and political subdivisions
  
  22,054
  
  312
  
  (161
  )
  22,205Other corporate
  
  7,239
  
  253
  
  (40
  )
  7,452Total debt
  securities
  
  287,527
  
  4,547
  
  (758
  )
  291,316Equity
  securities:Marketable
  equity securities
  
  3,836
  
  13
  
  (667
  )
  3,182Restricted
  equity securities
  
  11,114
  
  
  
  
  
  11,114Total equity
  securities
  
  14,950
  
  13
  
  (667
  )
  14,296Total
  
  $
  302,477
  
  $
  4,560
  
  $
  (1,425
  )
  $
  305,612December 31,
  2000Debt securities:Obligations of
  U.S. government agencies
  
  $
  251,300
  
  $
  1,301
  
  $
  (2,353
  )
  $
  250,248Obligations of
  states and political subdivisions
  
  18,341
  
  445
  
  (33
  )
  18,753Other corporate
  
  5,277
  
  87
  
  (227
  )
  5,137Total debt
  securities
  
  274,918
  
  1,833
  
  (2,613
  )
  274,138Equity
  securities:Marketable
  equity securities
  
  5,376
  
  9
  
  (1,640
  )
  3,745Restricted
  equity securities
  
  12,630
  
  
  
  
  
  12,630Total equity
  securities
  
  18,006
  
  9
  
  (1,640
  )
  16,375Total
  
  $
  292,924
  
  $
  1,842
  
  $
  (4,253
  )
  $
  290,513  19 
   The amortized cost and estimated fair value of Suns securities at
December 31, 2001 and 2000, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without prepayment penalties.  Securities
by Contractual Maturity*: December
  31,2001
  
  2000(In Thousands)
  
  Amortized Cost
  
  Fair Value
  
  Amortized Cost
  
  Fair ValueDebt securities:Due in one year
  or less
  
  $
  2,742
  
  $
  2,757
  
  $
  15
  
  $
  15Due after one
  year through five years
  
  20,821
  
  21,234
  
  12,054
  
  12,026Due after five
  years through ten years
  
  36,315
  
  37,907
  
  57,102
  
  56,709Due after ten
  years
  
  14,922
  
  15,317
  
  22,831
  
  23,291Mortgage-backed
  securities
  
  212,727
  
  214,101
  
  182,916
  
  182,097Total debt
  securities
  
  287,527
  
  291,316
  
  274,918
  
  274,138Equity
  securities
  
  14,950
  
  14,296
  
  18,006
  
  16,375Total
  
  $
  302,477
  
  $
  305,612
  
  $
  292,924
  
  $
  290,513  
 *Actual principal cash flows may differ due to individual securities
call, prepayment, and other options.  Securities with a carrying value of $205,215,000 at December 31, 2001
and $275,996,000 at December 31, 2000 were pledged to secure public deposits,
trust deposits, securities sold under agreements to repurchase, FHLB
borrowings, and other balances required by law.  Suns securities do not include any concentrations exceeding 10% of
shareholders equity from any individual issuer (excluding those guaranteed by
the U.S. government or its agencies).  Sales of
Securities: For the
  Years Ended December 31,(In Thousands)
  
  2001
  
  2000
  
  1999Realized Gains
  
  $
  1,044
  
  $
  964
  
  $
  1,967Realized Losses
  
  (200
  )
  (2,919
  )
  (5
  )Net Realized
  Gains (Losses)
  
  $
  844
  
  $
  (1,955
  )
  $
  1,962  20 
   7. Loans Loan activity is well diversified and focused within Suns defined
market area. However, borrowers ability to repay loans depends in part on
economic conditions in Suns market area.  Loan
Portfolio Composition: December
  31,(In Thousands)
  
  2001
  
  2000Real estate 
  Mortgages
  
  $
  261,310
  
  $
  203,371Real estate 
  Construction
  
  6,912
  
  5,340Agricultural
  
  503
  
  617Commercial and
  industrial
  
  151,181
  
  117,096Lease  Auto
  
  8,489
  
  Lease 
  Equipment
  
  2,287
  
  Individual
  
  92,649
  
  86,123Other
  
  1,619
  
  54Total
  
  524,950
  
  412,601Less: Unearned
  income on loans
  
  (2,831
  )
  (391
  )Unamortized net
  discount on purchased loans
  
  (137
  )
  (214
  )Deferred loan
  fees
  
  (258
  )
  (147
  )ALLL
  
  (6,204
  )
  (5,074
  )Net
  
  $
  515,520
  
  $
  406,775 Transactions in the ALLL were as follows:  ALLL: Years
  Ended December 31,(In Thousands)
  
  2001
  
  2000
  
  1999Balance,
  beginning of year
  
  $
  5,074
  
  $
  3,857
  
  $
  3,327Provision for
  loan and lease losses
  
  1,500
  
  2,500
  
  1,925ALLL assumed
  upon acquisition of Guaranty
  
  572
  
  
  
  Recoveries
  
  341
  
  270
  
  211Loans charged
  off
  
  (1,283
  )
  (1,553
  )
  (1,606
  )Balance, end of
  year
  
  $
  6,204
  
  $
  5,074
  
  $
  3,857  Impaired
Loans and Past Due Loans: At
  December 31,(In Thousands)
  
  2001
  
  2000
  
  1999Impaired loans
  
  $
  5,592
  
  $
  3,482
  
  $
  2,517Accruing loans
  past due 90 days or more as to principal and interest
  
  $
  560
  
  $
  1,429
  
  $
  1,015Amount of
  impaired loans with a related allowance for possible loss
  
  $
  5,592
  
  $
  3,482
  
  $
  2,517Amount of
  impaired loans with no related allowance
  
  
  
  
  
  Total allowance
  for impaired loans
  
  $
  2,339
  
  $
  410
  
  $
  459  For Years Ended December 31,2001
  
  2000
  
  1999Average
  investment in impaired loans
  
  $
  4,977
  
  $
  3,518
  
  $
  3,288Interest income
  recognized on impaired loans (all cash basis)
  
  $
  437
  
  $
  271
  
  $
  253  21 
   8. Bank
Premises and Equipment  (In Thousands)Bank premises and equipment at December 31:
  
  2001
  
  2000(In Thousands)Land
  
  $
  1,906
  
  $
  1,542Bank premises
  
  12,308
  
  9,529Furniture and
  equipment
  
  6,977
  
  5,884Total cost
  
  21,191
  
  16,955Less:
  Accumulated depreciation
  
  (6,729
  )
  (6,060
  )Bank premises
  and equipment, net
  
  $
  14,462
  
  $
  10,895  Depreciation expense was $977,000 in 2001, $812,000 in 2000, and
$715,000 in 1999.  9.
Deposits The following table reflects certificates of deposit and other time
deposits and their remaining maturities as of December 31, 2001:  (In Thousands)Years Ending December 31:(In
  Thousands)2002
  
  $
  195,0942003
  
  43,4652004
  
  19,2912005
  
  10,1952006
  
  12,764Thereafter
  
  186Total
  
  $
  280,995  Accounts of $100,000 or More: The totals above include certificates of deposit and other time
deposits issued in amounts of $100,000 or more. These deposits and their
remaining maturities, at December 31, 2001 were:  (In Thousands)December 31,
  
  2001Three months or
  less
  
  $
  10,628Three through
  six months
  
  8,979Six through
  twelve months
  
  13,004Over twelve
  months
  
  16,973Total
  
  $
  49,584  Interest on deposits of
$100,000 or more amounted to approximately $3,179,000 in 2001, $2,691,000 in
2000, and $2,001,000 in 1999.  22 
   10. Borrowed Funds At December 31, 2001, Suns maximum borrowing capacity at the FHLB was
$273,979,000, with $51,706,000 in unused capacity.  At December 31, 2000, Suns maximum borrowing capacity at the FHLB was
$253,067,000, with $30,786,000 in unused capacity. Sun also maintains a line of
credit with Allfirst Bank of $5,000,000 which has never been used. Borrowed funds as of December 31, 2001 and 2000 included:  December
  31,(In Thousands)
  
  2001
  
  2000Short-term
  Borrowings:Securities sold
  under agreements to repurchase (1)
  
  $
  22,013
  
  $
  9,557Treasury Tax and
  Loan Note Option (2)
  
  125
  
  25Total Short-term
  Borrowings
  
  22,138
  
  9,582FHLB advances
  (3)
  
  222,000
  
  222,000Total Borrowed
  Funds
  
  $
  244,138
  
  $
  231,582  
 (1) Securities sold under 
agreements to repurchase represent deposit customers cash management
accounts. These repurchase agreements are collateralized by a blanket agreement
with the FHLB in which the actual ownership of the securities is not transferred.
The maximum month end amount of securities sold under agreements to repurchase
was $22,673,000 in 2001, $17,563,000 in 2000, and $15,332,000 in 1999.  The average daily amount of such borrowings was $17,101,000 in 2001,
$11,438,000 in 2000, and $12,175,000 in 1999, and the weighted average interest
rates were 2.47% in 2001, 4.66% in 2000, and 3.36% in 1999.  (2) Borrowings on the Treasury Tax and Loan Note Option (TT&L)
represent tax funds deposited and held until the U.S. Treasury calls the
balance.  At December 31, 2001, the maximum amount available to borrow through
the Note Options was $125,000. The maximum month end amount of such borrowings
was $125,000 in 2001, $25,000 in 2000, and $3,663,000 in 1999. The average
daily amount of such borrowings was $125,000 in 2001, $25,000 in 2000, and
$199,000 in 1999, and the weighted average interest rates were 3.46% in 2001,
5.88% in 2000, and 4.52% in 1999.  (3) FHLB advances represent variable and fixed rate borrowings
collateralized by first-lien residential mortgages and investment securities
issued by U.S. government agencies. Stated maturities are shown below:  December
  31,(In Thousands)
  
  2001
  
  2000Variable rates
  between 5.04% and 5.41%, at December 31, 2001, maturity 2008
  
  $
  70,000
  
  $
  70,000Variable rates
  between 4.93% and 5.88%, at December 31, 2001, maturity 2009
  
  50,000
  
  50,000Variable rates
  between 5.86% and 6.36%, at December 31, 2001, maturity 2010
  
  100,000
  
  100,000Fixed rates
  between 7.80% and 7.88%, maturity 2002
  
  2,000
  
  2,000Total
  
  $
  222,000
  
  $
  222,000  23 
   11.
Estimated Fair Value of Financial Instruments SFAS No. 107, Disclosures about Fair Value of Financial Instruments,
requires Sun to disclose estimated fair values for its financial instruments.
Fair value estimates are made at a specific point in time, based on relevant
market and financial instrument information. These estimates do not reflect any
premium or discount that could result from a sale of any particular financial
instrument or group of instruments. Established markets do not exist for many
of Suns financial instruments, so fair value estimates are based on judgments
regarding current economic conditions, return rates, and anticipated risk
characteristics. These estimates are highly subjective, involve considerable
uncertainty, and cannot be precisely determined. Changes to those assumptions
can significantly affect the estimated fair values.  Sun determines estimated fair value using historical data and
reasonable estimation methodology for each financial instrument category.
Estimated fair value for Suns investment securities is detailed in Note 6. All
other fair value estimates, methods, and assumptions are set forth below:  Cash and
due from banks: The carrying amounts for cash and due from banks represent approximate
fair value.  Loans: Management segregates loans into categories with homogeneous types,
financial structure, and risk characteristics. For performing loans, expected
cash flows until full repayment are discounted at a rate which management
believes fairly reflects credit, interest rate, and other risks. Cash flows and
maturities are estimated based on Suns historical experience with each loan
category (modified as warranted for current economic conditions).  Management estimates fair value for significant nonperforming loans
based on recent external appraisals. If appraisals are not available, estimated
cash flows are discounted using a rate commensurate with the risk associated
with the estimated cash flows. Credit risk, cash flows, and discount rate
assumptions are determined using market information using methods management
believes to be reasonable. December
  31,2001
  
  2000(In
  Thousands)
  
  Book Value
  
  Fair Value
  
  Book Value
  
  Fair ValueTotal loans, net
  
  $
  515,520
  
  $
  589,025
  
  $
  406,775
  
  $
  405,026  Deposits: Fair value of deposits with no stated maturity, such as demand
deposits, NOW accounts, savings deposits, and Insured Money Market Accounts,
are estimated at carrying value. Fair value of deposits with frequently reset
adjustable rates or managed rates are estimated at carrying value (such
deposits are generally priced at market). Fair value of time deposits is based
on the discounted value of contractual cash flows discounted at observed market
rates for time deposits with similar characteristics and remaining maturities.
Fair value estimates for deposits are not based on market rates for borrowings
or other higher cost alternatives. December
  31,2001
  
  2000(In
  Thousands)
  
  Book Value
  
  Fair Value
  
  Book Value
  
  Fair ValueTotal deposits
  
  $
  573,877
  
  $
  588,301
  
  $
  444,566
  
  $
  444,591  24 
   Borrowed
Funds: Current available borrowing rates from similar sources are used to
value existing borrowings. December
  31,2001
  
  2000(In
  Thousands)
  
  Book Value
  
  Fair Value
  
  Book Value
  
  Fair ValueTotal borrowings
  
  $
  264,582
  
  $
  251,093
  
  $
  231,582
  
  $
  225,935  Off-balance Sheet Items: There is no material difference between the notional amount and the
estimated fair value of off-balance sheet items. Those items totaled
$112,443,000 at December 31, 2001, and $123,360,000 at December 31, 2000. Those
items primarily consist of unfunded loan commitments, which are generally
priced at market when funded.  12.
Common Stock Plans Sun has three common stock plans for employees and directors. The 1998
Stock Incentive Plan, administered by a disinterested Board of Directors
committee, allows 716,625 shares of common stock for key officers and other
management employees in the form of qualified options, nonqualified options,
stock appreciation rights, or restrictive stock. The 1998 Independent Directors
Stock Option Plan allows 115,763 shares of common stock to be issued to non-employee
directors. Options under those plans expire ten years after the grant date.
Also, 248,063 shares were allocated for the 1998 Employee Stock Purchase Plan,
which permits all employees to purchase common stock at an option price per
share not less than 85% of the market value on the exercise date. Options
granted to date have been awarded at 90% of the market value on the exercise
date. Each option under the 1998 Employee Stock Purchase Plan expires no later
than 5 years from the grant date. This plan terminates in 2008.  Sun applies Accounting Principles Board Opinion 25 and related
interpretations to account for its common stock plans. Accordingly, Sun has not
recognized compensation expense for the plans. Had compensation costs been
determined based on fair values at the grant dates (pursuant to SFAS No. 123),
Suns net income and earnings per share for 2001, 2000, and 1999 would have
been adjusted to the pro forma amounts indicated below: 2001
  
  2000
  
  1999Net income:As reported
  
  $
  8,350,000
  
  $
  4,598,000
  
  $
  8,755,000Pro forma
  
  $
  8,158,000
  
  $
  4,434,000
  
  $
  8,409,000Earnings per
  share  Basic:As reported
  
  $
  1.20
  
  $
  0.68
  
  $
  1.28Pro forma
  
  $
  1.18
  
  $
  0.65
  
  $
  1.23  For the pro forma calculations above, each option grants fair value
was estimated on the grant date using the Black-Scholes option-pricing model
and the following weighted-average assumptions for grants issued in 2001, 2000,
and 1999: 2001
  
  2000
  
  1999Dividend yield
  
  4
  %
  5
  %
  3
  %Volatility
  
  24
  %
  24
  %
  24
  %Risk-free
  interest rates:Stock Incentive
  Plan
  
  4.50
  %
  6.13
  %
  5.37
  %Independent
  Directors Plan
  
  4.88
  %
  6.55
  %
  5.18
  %Employee Stock
  Purchase Plan
  
  4.51
  %
  6.38
  %
  5.13
  %Expected option
  lives
  
  4 years
  
  4 years
  
  4 years  25 
   The common stock
plans are summarized below: 2001
  
  2000
  
  1999Weighted-
  average
  Shares
  
  Exercise
  Price
  
  Weighted-
  average
  Shares
  
  Exercise
  Price
  
  Weighted-
  average
  Shares
  
  Exercise
  PriceOutstanding,
  beginning of year
  
  510,887
  
  $
  22.35
  
  436,358
  
  $
  23.25
  
  361,122
  
  $
  23.82Granted
  
  117,105
  
  16.53
  
  117,356
  
  15.64
  
  124,943
  
  23.82Exercised
  
  (9,085
  )
  14.53
  
  (7,504
  )
  13.20
  
  (27,503
  )
  14.49Forfeited
  
  (115,061
  )
  15.11
  
  (35,323
  )
  13.17
  
  (22,204
  )
  26.84Outstanding, end
  of year
  
  503,846
  
  $
  22.79
  
  510,887
  
  $
  22.35
  
  436,358
  
  $
  23.25Options
  exercisable at year end
  
  417,264
  
  
  
  428,387
  
  
  
  346,862
  
  262,106Fair value of
  options granted during the year
  
  $
  2.48
  
  
  
  $
  2.12
  
  
  
  $
  4.19  The following
table summarizes the fixed stock options outstanding under the Stock Incentive
Plan, Independent Directors Plan, and the Employee Stock Purchase Plan at
December 31, 2001: Exercise
  Prices
  
  Number
  Outstanding
  at December 31, 2001
  
  Remaining
  Contractual Life
  
  Number
  Exercisable
  at December 31, 2001$15.40
  
  8,411
  
  1 year
  
  8,411$15.40
  
  7,379
  
  2 years
  
  7,379$15.40
  
  12,276
  
  3 years
  
  12,276$10.76
  
  15,542
  
  3 years
  
  15,542$15.40
  
  13,836
  
  4 years
  
  13,836$11.22
  
  1,646
  
  4 years
  
  1,646$13.71
  
  23,080
  
  4 years
  
  23,080$15.40
  
  17,887
  
  5 years
  
  17,887$16.24
  
  6,330
  
  5 years
  
  6,330$18.43
  
  29,659
  
  5 years
  
  29,659$19.19
  
  8,230
  
  6 years
  
  8,230$21.89
  
  41,665
  
  6 years
  
  41,665$33.70
  
  10,699
  
  7 years
  
  10,699$34.29
  
  56,692
  
  7 years
  
  56,692$22.28
  
  10,231
  
  8 years
  
  10,231$25.71
  
  56,952
  
  8 years
  
  56,952$16.56
  
  10,231
  
  9 years
  
  10,231$16.00
  
  75,500
  
  9 years
  
  75,500$16.00
  
  11,018
  
  10 years
  
  11,018$16.83
  
  86,582
  
  10 years
  
  503,846
  
  7.2 years
  
  417,264  13. Employee Benefit Plans Sun provides a
defined contribution pension plan that covers substantially all employees.
Suns contributions are based on employee contributions and compensation. In
addition to the defined contribution plan, Sun also provides supplemental
payments to certain key employees upon retirement. With the Guaranty
acquisition in 2001, Sun will also provide supplemental payments to certain
former directors. Life insurance contracts are being used to fund this plan.
Expenses related to to these plans were:  (In
  Thousands)
  
  2001
  
  2000
  
  1999Defined pension
  contributions
  
  $
  482
  
  $
  350
  
  $
  327Supplemental
  payment expense
  
  $
  36
  
  $
  40
  
  $
  37  26 
   14.
Income Taxes Temporary
differences produced a deferred tax asset at December 31, 2001 and 2000, which
is summarized below:  (In Thousands)December 31,
  
  2001
  
  2000Deferred tax
  assets:Loan losses
  
  $
  1,892
  
  $
  1,679Discount on
  loans acquired from Bucktail
  
  116
  
  149Loan fees and
  costs
  
  86
  
  47Premium on
  deposits assumed from Bucktail
  
  
  
  9Nonaccrual
  interest
  
  68
  
  28Supplemental
  compensation plan
  
  109
  
  104Unrealized
  losses on investment securities
  
  
  
  820Other
  
  71
  
  178Total
  
  2,342
  
  3,014Deferred tax
  liabilities:Bank premises
  and equipment
  
  706
  
  868Unrealized gains
  on investment securities
  
  1,066
  
  Other
  
  57
  
  52Total
  
  1,829
  
  920Deferred tax
  asset, net
  
  $
  513
  
  $
  2,094  Suns income tax
provision for 2001, 2000, and 1999 consists of the following:  (In Thousands)Years Ended December 31,
  
  2001
  
  2000
  
  1999Current
  provision
  
  $
  3,649
  
  $
  1,875
  
  $
  3,383Deferred income
  tax (benefit) provision
  
  (305
  )
  (349
  )
  2Tax expense from
  allocation of stock option tax benefits directly to equity
  
  
  
  
  
  40Income tax
  provision
  
  $
  3,344
  
  $
  1,526
  
  $
  3,425  Actual income tax
expense reconciles to the tax amount, which would have been recognized at the
federal statutory rate as follows:  (In Thousands)
  
  2001
  
  2000
  
  1999Years
  Ended December 31,
  
  Amount
  
  Rate
  
  Amount
  
  Rate
  
  Amount
  
  RateFederal income tax at statutory rate
  
  $
  4,093
  
  35.0
  %
  $
  2,143
  
  35.0
  %
  $
  4,263
  
  35.0
  %Tax exempt income
  
  (834
  )
  (7.1
  )
  (668
  )
  (10.9
  )
  (838
  )
  (6.9
  )Amortization of goodwill
  
  328
  
  2.8
  
  264
  
  4.3
  
  264
  
  2.2Tax credits from limited partnerships
  
  (443
  )
  (3.8
  )
  (225
  )
  (3.7
  )
  (228
  )
  (1.9
  )Other items
  
  200
  
  1.7
  
  12
  
  .2
  
  (36
  )
  (.3
  )Income tax provision
  
  $
  3,344
  
  28.6
  %
  $
  1,526
  
  24.9
  %
  $
  3,425
  
  28.1
  %  27 
   15.
Related Party Transactions Certain executive officers, corporate directors, or companies in which
they have 10 percent or more beneficial ownership were indebted to Sun or held
deposit accounts with the Bank during 2001. All transactions were made in the
ordinary course of business on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other persons and do not involve more than normal collection
risk. Other changes are transfers in and out of the related party category. Related Party Indebtedness:  (In Thousands)
  Year Ended December 31,
  
  Beginning
  Balance
  
  Loans
  
  New
  Repayments
  
  Other
  Changes
  
  Ending
  Balance14
  Directors, 3 Executive Officers 2001
  
  $
  6,468
  
  $
  23,173
  
  $
  (24,706
  )
  $
  5,911
  
  $
  10,8469 Directors, 3
  Executive Officers 2000
  
  5,673
  
  9,729
  
  (8,887
  )
  (47
  )
  6,4689 Directors, 6
  Executive Officers 1999
  
  7,167
  
  106
  
  (1,600
  )
  
  
  5,673  Related Party Deposits:  (In Thousands)December 31,
  
  2001
  
  2000
  
  1999Deposit Balances
  
  $
  4,184
  
  $
  2,803
  
  $
  3,886  16.
Off-Balance Sheet Risk Sun is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet customers financing needs. These
financial instruments include commitments to extend credit and standby letters
of credit containing, in varying degrees, credit and interest rate risk
exceeding the amount recognized in the balance sheet.  Credit risk from nonperformance by counterparties to commitments to
extend credit and standby letters of credit is represented by the contractual
amount of those instruments. Sun uses the same credit policies to guide
commitments and conditional obligations as it does for direct, funded loans.  Commitments to extend credit are agreements to lend to a customer as
long as no contract conditions are violated. Commitments generally include
fixed expiration dates or other termination clauses and certain fee payments.
Since many commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash requirements.
Each customers creditworthiness is evaluated on a case-by-case basis. The
collateral amount obtained, if deemed necessary, is based on managements
credit evaluation of the customer. Collateral types vary but may include
accounts receivable, inventory, property, equipment, and income-producing
commercial properties.  Standby letters of credit are conditional commitments that guarantee a
customers performance to a third party. Those guarantees are primarily issued
to support borrowing arrangements and related transactions. Terms vary from one
month to 24 months and may have renewal features. Credit risk differs little
from direct loans to customers. When warranted, Sun holds collateral against
those commitments.  (In Thousands)December 31,
  
  2001
  
  2000Commitments to
  extend credit (binding)
  
  $
  110,193
  
  $
  119,410Standby letters
  of credit and financial guarantees
  
  $
  2,250
  
  $
  3,950  28 
   17.
Regulatory Matters Sun and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements could prompt regulatory action that, if undertaken, might
materially affect Suns financial statements. Under regulatory capital adequacy
guidelines, Sun and the Bank must meet specific capital requirements involving
quantitative measures of assets, liabilities, and certain off-balance sheet
items (calculated using regulatory accounting practices). All related factors
are subject to qualitative judgments by the regulators.  Capital adequacy regulations require Sun and the Bank to maintain
minimum total and Tier I capital amounts and ratios. To be considered well
capitalized, Sun must maintain higher capital amounts and ratios. Management
believes Sun and the Bank meet all applicable capital adequacy requirements as
of December 31, 2001 and 2000. The table below details Suns capital amounts
and ratios, and lists regulatory minimum and well capitalized requirements.  Actual
  Ratio
  
  
  
  For
  Capital
  Adequacy Purposes
  
  To Be Well
  Capitalized
  Under Prompt Corrective
  Action Provisions(In Thousands)
  
  
  Amount
  
  Ratio
  
  Amount
  
  Ratio
  
  AmountAs of
  December 31, 2001:Total Capital (to Risk Weighted
  Assets)
  
  $
  78,730
  
  14.9
  %
  $
  42,233
  
  8.0
  %
  $
  52,791
  
  10.0
  %Tier 1 Capital (to Risk Weighted
  Assets)
  
  $
  68,582
  
  13.0
  %
  $
  21,116
  
  4.0
  %
  $
  31,675
  
  6.0
  %Tier 1 Capital (to Average Assets)
  
  $
  68,582
  
  7.1
  %
  $
  38,507
  
  4.0
  %
  $
  48,134
  
  5.0
  %As of December
  31, 2000:Total Capital
  (to Risk Weighted Assets)
  
  $
  59,303
  
  15.0
  %
  $
  31,651
  
  8.0
  %
  $
  39,564
  
  10.0
  %Tier 1 Capital
  (to Risk Weighted Assets)
  
  $
  54,356
  
  13.7
  %
  $
  15,825
  
  4.0
  %
  $
  23,738
  
  6.0
  %Tier 1 Capital
  (to Average Assets)
  
  $
  54,356
  
  7.5
  %
  $
  29,041
  
  4.0
  %
  $
  36,302
  
  5.0
  %  29 
   18.
Condensed Financial Information  Parent Company Only CONDENSED BALANCE SHEETS  (In Thousands)December 31,
  
  2001
  
  2000Assets:Cash
  
  $
  150
  
  $
  28Securities
  available for sale
  
  
  
  740Subsidiary
  investments:SunBank
  
  88,188
  
  61,307SUBI Investment
  Company
  
  9,304
  
  Beacon Life
  Insurance Company
  
  542
  
  465Sun Trust I
  
  511
  
  Sun Abstract
  & Settlement Services
  
  14
  
  15Receivable from
  Sun Trust I
  
  19
  
  Subordinated
  debenture issuance costs
  
  446
  
  Other assets
  
  56
  
  94Total assets:
  
  $
  99,230
  
  $
  62,649Liabilities:Subordinated
  debentures
  
  $
  20,955
  
  $
  Subordinated
  debenture interest payable
  
  755
  
  Accounts payable
  
  9
  
  122Total
  Liabilities
  
  21,719
  
  122Shareholders
  Equity:Common stock
  
  83,565
  
  81,632Retained
  earnings (deficit)
  
  (6,961
  )
  (11,177
  )Accumulated
  other comprehensive income (loss)
  
  2,069
  
  (1,591
  )Treasury stock
  
  (1,162
  )
  (6,337
  )Total
  shareholders equity
  
  77,511
  
  62,527Total
  liabilities and shareholders equity
  
  $
  99,230
  
  $
  62,649  CONDENSED
STATEMENTS OF INCOME  (In Thousands)Years Ended December 31,
  
  2001
  
  2000
  
  1999Income:Dividends from
  Subsidiaries
  
  $
  1,059
  
  $
  6,506
  
  $
  5,714Net security
  gains
  
  
  
  
  
  198Interest and
  other income
  
  75
  
  19
  
  26Total income
  
  1,134
  
  6,525
  
  5,938Expenses:Subordinated
  debenture interest
  
  1,623
  
  
  
  Stationery and
  printing
  
  61
  
  17
  
  23Professional
  fees
  
  197
  
  82
  
  87Other expenses
  
  260
  
  221
  
  143Loss from investment in limited partnerships
  
  
  
  
  
  29Total expenses
  
  2,141
  
  320
  
  282Income (loss)
  before income taxes and equity in undistributed earnings of subsidiaries
  
  (1,007
  )
  6,205
  
  5,656Income tax
  benefit
  
  (698
  )
  (107
  )
  (281
  )Income (loss)
  before equity in undistributed earnings of subsidiaries
  
  (309
  )
  6,312
  
  5,937Equity in
  undistributed earnings (losses) of subsidiaries
  
  8,659
  
  (1,714
  )
  2,818Net income
  
  $
  8,350
  
  $
  4,598
  
  $
  8,755  30 
   CONDENSED
STATEMENTS OF CASH FLOWS  (In Thousands)Years Ended December 31,
  
  2001
  
  2000
  
  1999Cash flows from
  operating activities:Net income
  
  $
  8,350
  
  $
  4,598
  
  $
  8,755Adjustments to
  reconcile net income to net cash (used in) provided by operating activities:Equity in
  undistributed (earnings) losses of subsidiaries
  
  (8,659
  )
  1,714
  
  (2,818
  )Loss from
  investment in limited partnerships
  
  
  
  
  
  29Realized net
  security gains
  
  
  
  
  
  (198
  )(Increase)
  decrease in other assets
  
  (487
  )
  989
  
  (176
  )Increase
  (decrease) in liabilities
  
  642
  
  117
  
  (2
  )Net cash (used
  in) provided by operating activities
  
  (154
  )
  7,418
  
  5,590Cash flows from
  investing activities:Purchases of
  investment securities
  
  (7
  )
  (240
  )
  (110
  )Purchase of
  investment in SUBI Investment Company
  
  (8,460
  )
  
  
  Purchase of
  investment in Sun Trust I
  
  (511
  )
  
  
  Purchase of
  investment in Sun Abstract
  
  
  
  (15
  )
  Proceeds from
  return of capital of investment in Sun Abstract
  
  7
  
  
  
  Proceeds from
  transfer of investment in limited partnerships to SunBank
  
  
  
  
  
  1,488Proceeds from
  sales of investment securities
  
  
  
  
  
  833Net cash (used
  in) provided by investing activities
  
  (8,971
  )
  (255
  )
  2,211Cash flows from
  financing activities:Proceeds from
  issuance of subordinated debentures
  
  17,011
  
  
  
  Cash dividends
  
  (4,134
  )
  (5,277
  )
  (6,135
  )Return of
  capital, Sun Abstract
  
  4
  
  
  
  Purchase of
  Guaranty Bank, N.A.
  
  (2,544
  )
  
  
  Purchase of
  treasury stock
  
  (1,213
  )
  (1,995
  )
  (2,163
  )Proceeds from
  sale of stock for employee benefit program
  
  123
  
  112
  
  398Net cash provided
  by (used in) financing activities
  
  9,247
  
  (7,160
  )
  (7,900
  )Net increase
  (decrease) in cash and cash equivalents
  
  122
  
  3
  
  (99
  )Cash and cash
  equivalents at beginning of year
  
  28
  
  25
  
  124Cash and cash
  equivalents at end of year
  
  $
  150
  
  $
  28
  
  $
  25  31 
   19.
Consolidated Quarterly Financial Data (Unaudited)  (Dollars in Thousands, Except for Per Share Data)2001
  
  1st Qtr.
  
  2nd Qtr.
  
  3rd Qtr.
  
  4th Qtr.
  
  TotalInterest
  income
  
  $
  13,692
  
  $
  14,723
  
  $
  16,198
  
  $
  15,081
  
  $
  59,694Interest
  expense
  
  (8,518
  )
  (9,142
  )
  (9,593
  )
  (8,706
  )
  (35,959
  )Net
  interest income
  
  5,174
  
  5,581
  
  6,605
  
  6,375
  
  23,735Provision
  for loan and lease losses
  
  (300
  )
  (300
  )
  (325
  )
  (575
  )
  (1,500
  )Net
  security (losses) gains
  
  798
  
  38
  
  62
  
  (54
  )
  844Other
  operating income
  
  810
  
  893
  
  1,235
  
  834
  
  3,772Gain
  on sale of branches
  
  
  
  
  
  
  
  4,892
  
  4,892Other
  operating expenses
  
  (4,096
  )
  (4,833
  )
  (5,413
  )
  (5,707
  )
  (20,049
  )Income
  before income taxes
  
  2,386
  
  1,379
  
  2,164
  
  5,765
  
  11,694Income
  tax provision
  
  (613
  )
  (285
  )
  (613
  )
  (1,833
  )
  (3,344
  )Net
  income
  
  $
  1,773
  
  $
  1,094
  
  $
  1,551
  
  $
  3,932
  
  $
  8,350Net
  income per share  Basic
  
  $
  0.27
  
  $
  0.16
  
  $
  0.22
  
  $
  0.55
  
  $
  1.20Net
  income per share  Diluted
  
  $
  0.27
  
  $
  0.16
  
  $
  0.22
  
  $
  0.55
  
  $
  1.20  2000
  
  1st Qtr.
  
  2nd Qtr.
  
  3rd Qtr.
  
  4th Qtr.
  
  TotalInterest income
  
  $
  12,934
  
  $
  13,255
  
  $
  13,691
  
  $
  13,680
  
  $
  53,560Interest expense
  
  (7,410
  )
  (7,698
  )
  (8,274
  )
  (8,443
  )
  (31,825
  )Net interest
  income
  
  5,524
  
  5,557
  
  5,417
  
  5,237
  
  21,735Provision for
  loan and lease losses
  
  (600
  )
  (700
  )
  (600
  )
  (600
  )
  (2,500
  )Net security
  (losses) gains
  
  15
  
  (2,265
  )
  247
  
  48
  
  (1,955
  )Other operating
  income
  
  706
  
  769
  
  710
  
  754
  
  2,939Other operating
  expenses
  
  (3,121
  )
  (3,430
  )
  (3,364
  )
  (4,180
  )
  (14,095
  )Income (loss)
  before income taxes
  
  2,524
  
  (69
  )
  2,410
  
  1,259
  
  6,124Income tax
  (provision) benefit
  
  (716
  )
  155
  
  (639
  )
  (326
  )
  (1,526
  )Net income
  
  $
  1,808
  
  $
  86
  
  $
  1,771
  
  $
  933
  
  $
  4,598Net income per
  share  Basic
  
  $
  .27
  
  $
  .01
  
  $
  .26
  
  $
  .14
  
  $
  .68Net income per
  share  Diluted
  
  $
  .27
  
  $
  .01
  
  $
  .26
  
  $
  .14
  
  $
  .68  32 
   20.
Recent Accounting Pronouncements In September 2000, the FASB issued SFAS No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities.  This statement supercedes
and replaces the guidance in Statement No. 125. It revises the standards for
accounting for securitization and other transfers of financial assets and
collateral and requires certain disclosures, although it carries over most of
Statement No. 125s provisions without reconsideration. The Statement is
effective for transfers and servicing of financial assets and extinguishments
of liabilities occurring after March 31, 2001, and for recognition and
reclassification of collateral and for disclosures relating to securitization
transactions and collateral for fiscal years ending after December 15, 2000.
This Statement is to be applied prospectively with certain exceptions. Other
than those exceptions, earlier or retroactive application of its accounting
provisions is not permitted. The adoption of this statement had no impact on
Suns financial condition, equity, results of operations or disclosure.  In June 2001, the FASB issued Statement No. 141, Business
Combinations. The Statement addresses financial accounting and reporting for
business combinations and supersedes APB Opinion No. 16, Business
Combinations, and FASB Statement No. 38, Accounting for Preacquisition
Contingencies of Purchased Enterprises. All business combinations in the scope
of the Statement are to be accounted for using the purchase method. The provisions
of the Statement apply to all business combinations initiated after June 30,
2001. The Statement also applies to all business combinations accounted for
using the purchased method which the date of acquisition is July 1, 2001 or
later. There is no expected impact on earnings, financial conditions or equity
upon adoption of Statement No. 141.  In June 2001, the FASB issued Statement No. 142, Goodwill and Other
Intangible Assets. The Statement addresses financial accounting and reporting
for acquired goodwill and other intangible assets and supersedes APB Opinion
No. 17, Intangible Assets. It addresses how intangible assets that are
acquired individually or with a group of other assets (but not those acquired
in a business combination) should be accounted for in financial statements upon
their acquisition. The Statement also addresses how goodwill and other
intangible assets should be accounted for after they have been initially
recognized in the financial statements. The provisions of the Statement are
required to be applied starting with fiscal years beginning after December 15,
2001, except that goodwill and intangible assets acquired after June 30, 2001
will be subject immediately to the nonamortization and amortization provisions
of the Statement. Early application is permitted for entities with fiscal years
beginning after March 15, 2001, provided that the first interim financial
statements have not previously been issued. The Statement is required to be
applied at the beginning of an entitys fiscal year and to be applied to all
goodwill and other intangible assets recognized in its financial statement at
that date. This Statement does not supersede FASB Statement No. 72, Accounting
for Certain Acquisitions of Banking or Thrift Institutions. FASB has appointed
a committee to address concerns and issues raised as a result of excluding SFAS
72 from the provisions of SFAS 142. Based on the current project plan, a
statement of narrow scope is expected in the fourth quarter of 2002. There was
no impact on earnings, financial condition or equity as of, or for, the year
ending December 31, 2001. Sun has not yet determined the future impact, if any,
from this Statement on Suns financial condition, equity, results of
operations, or disclosure.  In June 2001, the FASB issued Statement No. 143, Accounting for Asset
Retirement Obligations. This Statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. It applies to legal
obligations associated with the retirement of long-lived assets that result
from the acquisition construction, development and (or) the normal operation of
a long-lived asset, except for certain obligations of lessees. As used in this
Statement, a legal obligation is an obligation that a party is required to
settle as a result of an existing or enacted law, statute, ordinance or written
or oral contract or by legal construction of a contract under the doctrine of
promissory estopped. This Statement requires that the fair value of a liability
for an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
long-lived asset. This Statement amends FASB Statement No. 19, Financial
Accounting and Reporting by Oil and Gas Producing Companies, and it applies to
all entities. It is effective for financial statements issued for fiscal years
beginning after June 15, 2002. Earlier application is encouraged. Sun does not
expect the adoption of the Statement to have an impact on its earnings,
financial condition or equity.  In August 2001, the FASB issued Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This Statement addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets and supersedes SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. However, the
Statement retains the fundamental provisions of Statement No. 121 for (a)
recognition and measurement of the impairment of long-lived assets to be held
and used and (b) measurement of long-lived assets to be disposed of by sale.
This Statement supersedes the accounting and reporting provision of APB Opinion
No. 30, Reporting the Results of Operations  Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions, for the disposal of a segment of a
business. However, this Statement retains the requirement of Opinion No. 30 to
report discontinued operations separately from continuing operations and
extends that reporting to a component of an entity that either has been
disposed of (by sale, by abandonment or in distribution to owners) or is
classified as held for sale. This Statement also amends ARB No. 51,
Consolidated Financial Statements, to eliminate the exception to consolidation
for a temporarily-controlled subsidiary. The provisions of this Statement are
effective for financial statements issued for fiscal years beginning after
December 15, 2001, and interim periods within those fiscal years, with earlier
application encouraged. The provision of this Statement generally are to be
applied prospectively. Sun does not expect the adoption of the Statement to
have an impact on its earnings, financial condition or equity.  33 
   21.
Subsequent Events On January 31, 2002, the Board of Directors declared a quarterly cash
dividend of $0.15 per common share. The dividend will be payable March 8, 2002
to shareholders of record on February 22, 2002.  Independent
Auditors Report  To the
Shareholders and Board of Directors of SUN BANCORP, INC:  We have audited the accompanying consolidated balance sheets of Sun
Bancorp, Inc. and subsidiaries (Sun) as of December 31, 2001 and 2000, and the
related consolidated statements of income, changes in shareholders equity and
cash flows for each of the three years in the period ended December 31, 2001.
These financial statements are the responsibility of Suns management. Our
responsibility is to express an opinion on these financial statements based on
our audits.  We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.  In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Sun
Bancorp, Inc. and subsidiaries as of December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.  Williamsport, Pennsylvania February 19, 2002  34 
   Selected Financial Data  (In
  Thousands)Balance
  Sheet Data
  
  2001
  
  2000
  
  1999
  
  1998
  
  1997Assets
  
  $
  920,855
  
  $
  743,588
  
  $
  710,921
  
  $
  623,577
  
  $
  510,728Deposits
  
  573,878
  
  444,566
  
  400,121
  
  363,886
  
  327,018Loans
  
  515,520
  
  406,775
  
  377,485
  
  326,928
  
  310,300Securities
  available for sale
  
  305,612
  
  290,513
  
  282,616
  
  254,780
  
  165,284Shareholders
  equity
  
  77,511
  
  62,527
  
  56,013
  
  67,801
  
  65,613Average equity
  
  68,207
  
  57,768
  
  63,537
  
  67,063
  
  51,470Average assets
  
  866,053
  
  724,435
  
  661,099
  
  575,797
  
  440,181Earnings Data
  (In Thousands)Interest income
  
  $
  59,694
  
  $
  53,360
  
  $
  47,454
  
  $
  42,677
  
  $
  33,653Interest expense
  
  35,959
  
  31,825
  
  26,230
  
  22,467
  
  16,619Net interest
  income
  
  23,735
  
  21,735
  
  21,224
  
  20,210
  
  17,034Provision for
  loan and lease losses
  
  1,500
  
  2,500
  
  1,925
  
  1,200
  
  1,175Net interest
  income after provision for loan and lease losses
  
  22,235
  
  19,235
  
  19,299
  
  19,010
  
  15,859Net security
  gains (losses)
  
  844
  
  (1,955
  )
  1,962
  
  1,403
  
  1,779Other operating
  income
  
  3,772
  
  2,939
  
  2,998
  
  2,687
  
  2,046Gain on sale of
  branches
  
  4,892
  
  
  
  
  
  
  
  Other operating
  expenses
  
  20,049
  
  14,095
  
  12,079
  
  11,295
  
  9,373Income before
  income tax provision
  
  11,694
  
  6,124
  
  12,180
  
  11,805
  
  10,311Income tax provision
  
  3,344
  
  1,526
  
  3,425
  
  3,079
  
  2,510Net income
  
  8,350
  
  4,598
  
  8,755
  
  8,726
  
  7,801Dividends paid
  
  4,134
  
  5,277
  
  6,135
  
  5,369
  
  4,217RatiosReturn on
  average assets
  
  .93
  %
  .63
  %
  1.32
  %
  1.51
  %
  1.77
  %Return on
  average equity
  
  12.24
  %
  7.96
  %
  13.78
  %
  13.01
  %
  15.16
  %Equity to assets
  (year end)
  
  8.42
  %
  8.41
  %
  7.88
  %
  10.87
  %
  12.85
  %Loans to
  deposits (year end)
  
  89.83
  %
  91.50
  %
  94.34
  %
  89.84
  %
  94.89
  %Loans to assets
  (year end)
  
  55.98
  %
  54.70
  %
  53.10
  %
  52.43
  %
  60.76
  %Dividend payout 
  (percentage of net income)
  
  49.51
  %
  114.77
  %
  70.07
  %
  61.53
  %
  54.06
  %Per Share DataNet income per
  share  Basic
  
  $
  1.20
  
  $
  .68
  
  $
  1.28
  
  $
  1.27
  
  $
  1.23Net income per
  share  Diluted
  
  $
  1.20
  
  $
  .68
  
  $
  1.28
  
  $
  1.26
  
  $
  1.22Cash dividends
  per share
  
  $
  .60
  
  $
  .78
  
  $
  .90
  
  $
  .78
  
  $
  .65Book value per
  share
  
  $
  10.85
  
  $
  9.39
  
  $
  8.25
  
  $
  9.89
  
  $
  9.60Average shares
  outstanding  Basic
  
  6,942,122
  
  6,769,924
  
  6,813,956
  
  6,856,955
  
  6,348,379Average shares
  outstanding  Diluted
  
  6,945,504
  
  6,784,262
  
  6,860,114
  
  6,923,366
  
  6,415,596Approximate
  number of shareholders
  
  2,207
  
  2,159
  
  2,105
  
  1,977
  
  1,757  35 
   Forward
Looking Statements (FLSs) This report contains FLSs that reflect Suns current views regarding
future events and financial performance for Sun and its subsidiaries. FLSs may
generally, but not always, be identified by words such as estimate,
believe, forecast and other indications of future events and trends. FLSs
are subject to considerable uncertainties and risks, including factors beyond
Suns control that could cause actual results to differ materially from
historical or anticipated results. Such factors include, but are not limited to
(1) customer and deposit attrition or revenue loss following announced mergers
may be greater than expected; (2) financial industry competition may increase
significantly; (3) changing economic, interest rate, and regulatory
environments; (4) announced mergers do not consummate as anticipated; (5) other
factors that may not be identifiable at this time. Further, Suns historical
performance does not guarantee and may not indicate future results.  The list of important factors is not complete or exclusive. Additional
information regarding factors that may cause actual results to differ
materially from those considered by FLSs is included in Suns current and
subsequent filings with the Securities and Exchange Commission (SEC). Sun does
not update any FLS that may be made from time to time by or on behalf of Sun.  Operations Sun provides community-based commercial banking and asset management
services through 24 SunBank offices in Lycoming, Snyder, Union, Northumberland,
Clinton, and Luzerne counties in northeast and central Pennsylvania. The
offices are located in diversified local economies with solid manufacturing and
service bases. Those local economies have not been subjected to observable
significant adverse effects from extraordinary events during 2001. During the
fourth quarter of 2001, Sun sold its two branches in Elk and Cameron counties
in part due to managements assessment that local economic conditions were not
conducive to Suns objectives.  Suns business is focused in community banking, commercial banking,
asset management, and treasury. Through community banking, Sun delivers
financial products and services to retail customers via its branch network,
telephone systems, and internet systems. Community banking products and
services include a wide range of deposit products, residential mortgage loans,
vehicle and personal loans, and other services. Suns commercial banking
business line provides credit, deposit, cash management, and other services to
businesses, municipalities, and nonprofit organizations. The wealth management
group provides asset management and trust services to retail and corporate
customers. The treasury area manages Suns investment securities portfolio and
overall asset/liability strategy. In addition, Sun has subsidiaries and
ownership interests in partnerships that engage in various business activities,
including credit life and disability insurance, title insurance and settlement
services, equipment leasing, consumer auto leasing, and affordable housing for
senior citizens.  Operating
Performance Summary: Sun reported net income of $8,350,000 for the year ended December 31,
2001, or $1.20 per share. Net income was $4,598,000 for the year ended December
31, 2000, or $0.68 per share. That 82% increase was augmented by a $3,180,000
gain, net of tax, from the sale of two branch offices, increased fee income
from deposit accounts and new services. However, those items were partially
offset by nonrecurring charges related to acquisitions and consolidation of
four trade names under the SunBank corporate identity. Net of items management
believes were nonrecurring, net income would have been $5,260,000 for the year
ended December 31, 2001, or $0.76 per share.  During 2001, management implemented many new strategies and programs
expected to begin improving Suns performance. Following the major management
and strategic restructure that occurred in 2000, managements 2001 efforts were
concentrated on strengthening credit quality, establishing Suns brand of
community-focused commercial banking, expanding core markets, building an
effective sales culture, and introducing new products and services.
Managements efforts have been largely successful and will continue in 2002.  During 2002, management plans to improve operational capabilities,
expand product lines, and improve service as parts of Project Deliver
Excellence. Project Deliver Excellence will review all operational areas to
identify potential improvements in efficiency, service, and cost. The project
is led by an internal task force of employees with considerable, varied
experience at a variety of financial institutions. Management does not expect
to incur material charges related to the project.  Suns 2001 financial results illustrate both the potential for growth
and improved performance, but also show lingering traces of past leverage
strategies. Management believes Suns strategies, culture, and services are
aligned to enable continued improvement. Suns 2001 acquisitions of three
Mellon bank branches and Guaranty Bank, N.A. have proven successful and have
provided attractive new markets with significant growth potential. Management
intends to vigorously pursue improved performance in 2002 and beyond via its
focus on credit quality, core deposit growth, effective risk management, and
market expansion.  36 
   Interest
Earning Assets Loans Loans represent Suns largest interest earning asset component. Net
total loans increased $108,745,000 to $515,520,000 at December 31, 2001, from
$406,775,000 at December 31, 2000, which represents 26.73% growth. The purchase
of Guaranty Bank, N.A. increased loans by $71,964,000 while the sale of the
Emporium and Johnsonburg branches decreased loans by $21,738,000. The largest
increases occurred in commercial loans and in residential mortgages, which
reflected Suns strategic plan to grow those portfolios. Management believes
the loan portfolio is adequately diversified and no credit concentration
exceeds 10% of total loans.  Sun extends credit
principally to customers in its core market areas, including Lycoming, Snyder,
Union, Northumberland, Clinton, and Luzerne counties in Pennsylvania. Suns
lending activity focuses on three segments: commercial, residential mortgage,
and consumer loans. Commercial credit products include demand notes, variable
rate notes, credit lines, equipment leasing, and real estate financing.
Residential mortgage lending includes a variety of programs and terms
consistent with the national and local markets. Consumer loans are primarily
direct and indirect vehicle financing. By preference, Sun lends predominately
on a secured basis.  The following table identifies loan portfolio composition, net of
unearned income, unamortized discounts on purchased loans, deferred loan fees,
and ALLL, for the five years ended December 31:  (In Thousands)
  
  2001
  
  2000
  
  1999
  
  1998
  
  1997Real estate 
  Mortgage
  
  $
  261,310
  
  $
  203,371
  
  $
  178,876
  
  $
  192,592
  
  $
  202,882Real estate 
  Construction
  
  6,912
  
  5,340
  
  3,318
  
  3,353
  
  3,632Agricultural
  
  503
  
  617
  
  1,059
  
  971
  
  1,157Commercial and
  industrial
  
  151,181
  
  117,096
  
  114,193
  
  52,823
  
  34,560Individual
  
  92,649
  
  86,123
  
  85,255
  
  83,343
  
  75,396Lease  Auto
  
  8,489
  
  
  
  
  
  
  
  Lease  Equipment
  
  2,287
  
  
  
  
  
  
  
  Other
  
  1,619
  
  54
  
  104
  
  383
  
  90Unearned income
  on loans
  
  (2,831
  )
  (391
  )
  (740
  )
  (1,666
  )
  (1,961
  )Deferred loan
  fees
  
  (258
  )
  (147
  )
  (215
  )
  (274
  )
  (533
  )Unamortized net
  discount on purchased loans
  
  (137
  )
  (214
  )
  (508
  )
  (1,270
  )
  (1,793
  )ALLL
  
  (6,204
  )
  (5,074
  )
  (3,857
  )
  (3,327
  )
  (3,130
  )Total loans, net
  
  $
  515,520
  
  $
  406,775
  
  $
  377,485
  
  $
  326,928
  
  $
  310,300  The following tables report gross loan balances by maturities and
interest rate repricing for agricultural, commercial and industrial, and real
estate  construction loans at December 31, 2001.  (In Thousands)
  
  Within
  One Year
  
  After One
  But
  Within Five Years
  
  After
  Five Years
  
  TotalAgricultural,
  commercial and industrial
  
  $
  57,643
  
  $
  47,918
  
  $
  46,123
  
  $
  151,684Real estate 
  Construction
  
  6,912
  
  
  
  
  
  6,912Total
  
  $
  64,555
  
  $
  47,918
  
  $
  46,123
  
  $
  158,596  Interest
  Rate SensitivityFixed
  Rate
  
  Variable
  Rate
  
  TotalDue within one
  year
  
  $
  5,163
  
  $
  59,392
  
  $
  64,555Due after one
  year
  
  71,438
  
  22,603
  
  94,041Total
  
  $
  76,601
  
  $
  81,995
  
  $
  158,596  37 
   Credit
Quality Despite adverse national economic developments, Suns credit quality
remained healthy during 2001. As 2001 progressed, some banks began reporting
credit difficulties and bank regulatory agencies cautioned that overall bank
credit quality might be pressured. Contrary to industry trends, Suns credit
quality remained solid and loan demand remained strong.  Net loans grew
$108,745,000, or 26.7%, to $515,520,000 from $406,775,000 at December 31, 2000.
While net loans increased substantially, past due and nonperforming loans
remained stable. At December 31, 2001, past due and nonperforming loans totalled
$7,289,000 (1.41% of net loans) compared to $5,819,000 (1.43% of net loans) as
of December 31, 2000.  Beginning in 1999, management began instituting a new, strengthened
credit culture and control environment. Sun extends primarily secured credit,
and management closely evaluates collateral both prior to extending credit and
periodically thereafter. A consistent credit-scoring system, tailored for each
loan segment, enables management to carefully evaluate each borrowers credit
risk. Risk-based pricing enables management to price loans based on each
credits unique risk characteristics. Managements efforts have been
successful, but improvement is continually sought.  Sun relies on a matrix approval system to evaluate and approve new
credits. In addition, Suns credit quality committee meets regularly to focus
exclusively on potential credit issues. This senior management committee also
includes representatives from the Board of Directors. Larger loans are
presented directly to the Board of Directors for consideration. Management
provides the credit quality committee and the Board of Directors with regular
reports that illustrate the banks current and anticipated credit quality.  Suns formal loan review process provides management with independent
credit assessments. In addition, Sun periodically retains an independent
consultant to review all credits $250,000 and greater. Equally important,
management uses those reviews to evaluate internal loan review effectiveness.
Sun believes its loan review program provides adequate coverage and independent
analysis for managements credit quality assessments.  Past due and nonperforming loans include past due, nonaccrual, and
restructured loans. Sun places loans on nonaccrual status when management
concludes collection of interest income appears doubtful, or once the loan
reaches 90 days past due (unless well-secured and in the process of
collection). Interest on loans classified nonaccrual is recognized as it is
received. Restructured loans have terms renegotiated to reduce or defer
interest or principal.  Nonaccrual, past due, and restructured loans for the five years ended
December 31, 2001:  (In
  Thousands)
  
  2001
  
  2000
  
  1999
  
  1998
  
  1997Loans past due
  30 to 89 days
  
  $
  3,520
  
  $
  3,185
  
  $
  4,954
  
  $
  8,545
  
  $
  8,213Loans past due
  90 days or more
  
  560
  
  1,429
  
  1,015
  
  2,867
  
  2,988Nonaccrual loans
  
  2,851
  
  837
  
  1,965
  
  635
  
  1,110Restructured
  loans
  
  358
  
  368
  
  320
  
  243
  
  326Total past due
  and nonperforming loans
  
  $
  7,289
  
  $
  5,819
  
  $
  8,254
  
  $
  12,290
  
  $
  12,637  Total past due and nonperforming loans above include impaired loans
of approximately $5,592,000 at December 31, 2001, and $3,482,000 at December
31, 2000. In accordance with SFAS No. 114, a loan is considered impaired when,
based on current information and events, it appears probable all amounts due
will not be collected according to the loans contractual terms. This category
does not apply to large groups of smaller balance loans collectively evaluated
for impairment, such as residential mortgage and consumer loans.  38 
   Allowance
for Loan and Lease Losses (ALLL) Suns ALLL is funded through periodic provisions for loan and lease
losses, and that provision is reported as an expense in current income. Loan
losses are charged against the ALLL in the period in which they have been
determined uncollectible. Recoveries of previously charged off loans are
credited to the ALLL when received. Management funds the ALLL at a level
believed adequate to absorb potential credit losses in the existing loan
portfolio. Management believes the ALLL is adequate as of December 31, 2001.  Managements analysis incorporates many factors, including current and
anticipated economic conditions, loss experience, loan portfolio composition,
anticipated losses, and unfunded commitments. For significant real estate
properties, management obtains independent value appraisals. Suns internal
loan review function provides independent credit assessments and management also
retains consultants to conduct periodic loan quality reviews, which management
incorporates into its ALLL analysis.  Sun segregates the ALLL into specific allocations and other components.
Management determines specific allocations based on criteria and analysis
developed to evaluate credit risk within each loan category. Each loan
categorys unique risk characteristics guides managements analysis and
determination of an adequate specific reserve for that category. For real
estate loans, management considers factors that include historical and
projected loss rates, past due levels, collateral values, and anticipated
economic conditions. For commercial and industrial loans, management evaluates
several factors including: historical loss experience, current loan grades,
expected future cash flows, individual loan reviews, internal and external
analysis, and anticipated economic conditions. For individual (consumer) loans,
management evaluates factors such as historical and projected loss rates, past
due levels, collateral values, and anticipated economic conditions.  Suns other ALLL components are based on loss rates by loan grade,
economic trends, and other risk factors. Management determines estimated loss
rates by loan grade based on current loan grade, remaining term, loan type,
periodic quantification of actual losses over a period of time, and other
factors. Management believes its methodology reasonably measures the credit
risk not captured in specific allocations and provides for an adequate aggregate
ALLL.  Management closely monitored the ALLL during 2001 concurrently with
other efforts that produced improved credit quality (refer to prior Credit
Quality subsection). Management had increased the provision for loan and lease
losses (PLLL) to $2,500,000 during 2000. That 30% increase, coupled with
reduced charge-offs and increased recoveries, resulted in the ALLL growing from
1.01% of total loans at December 31, 1999, to 1.23% of total loans at December
31, 2000. That growth not only complimented Suns improving credit quality, it
provided additional protection against potential credit risk. Management
believes increasing the ALLL was prudent for three reasons: to capture
potential additional credit risk from loan growth during 2000, to protect against
negative economic conditions that began to develop during 2000, and to reflect
enhanced credit risk management and measurement systems developed during 2000.  During 2001, management reduced the PLLL to $1,500,000, and that
reduction reflected an existing adequate ALLL, credit quality improvement,
stable trends, and improved analysis. The 2001 PLLL resulted in an ALLL of
$6,204,000 (1.20% of total loans) as of December 31, 2001, compared to
$5,074,000 (1.23% of total loans) as of December 31, 2000.  Management has continued to enhance its methodology for analyzing the
ALLL and for allocating reserves. However, the ALLL still only represents
managements estimate of an amount adequate to absorb probable loan losses due
to credit quality. Management cannot precisely quantify that amount due to many
uncertainties, including future global, national, and local economic conditions
and other factors. As a result, unforeseen developments may require management
to increase the ALLL. Such developments could include changing economic
conditions or negative developments with borrowers. In addition, bank
regulators periodically assess Suns ALLL and may, consistent with examination
guidelines and current information, require an increased ALLL. As a result, any
number of factors may materially change managements analysis in the future.  39 
   ALLL Allocation and ALLL Changes for the five years ended December 31,
2001:  2001
  
  2000
  
  1999
  
  1998
  
  1997(In Thousands)
  
  Allowance
  
  % of
  Total
  Loans
  
  Allowance
  
  % of
  Total
  Loans
  
  Allowance
  
  % of
  Total
  Loans
  
  Allowance
  
  % of
  Total
  Loans
  
  Allowance
  
  % of
  Total
  LoansReal estate
  
  $
  2,357
  
  37.99
  %
  $
  1,870
  
  36.85
  %
  $
  844
  
  47.59
  %
  $
  1,408
  
  58.76
  %
  $
  1,651
  
  65.00
  %Commercial and industrial
  
  1,922
  
  30.98
  
  1,990
  
  39.22
  
  908
  
  30.13
  
  479
  
  16.25
  
  335
  
  11.27Individual
  
  1,925
  
  31.03
  
  1,214
  
  23.93
  
  2,105
  
  22.28
  
  1,440
  
  24.99
  
  1,144
  
  23.73Total ALLL
  
  $
  6,204
  
  100.00
  %
  $
  5,074
  
  100.00
  %
  $
  3,857
  
  100.00
  %
  $
  3,327
  
  100.00
  %
  $
  3,130
  
  100.00
  %  (In
  Thousands)
  
  2001
  
  2000
  
  1999
  
  1998
  
  1997Balance,
  beginning of year
  
  $
  5,074
  
  $
  3,857
  
  $
  3,327
  
  $
  3,130
  
  $
  2,490Loans and leases
  charged off:Real estate
  
  (303
  )
  (223
  )
  (389
  )
  (271
  )
  (962
  )Commercial and
  industrial
  
  (321
  )
  (618
  )
  (169
  )
  (276
  )
  (145
  )Individual
  
  (659
  )
  (712
  )
  (1,048
  )
  (704
  )
  (895
  )Total loans and
  leases charged off
  
  (1,283
  )
  (1,553
  )
  (1,606
  )
  (1,251
  )
  (2,002
  )Recoveries:Real estate
  
  63
  
  40
  
  36
  
  95
  
  22Commercial and
  industrial
  
  139
  
  37
  
  26
  
  32
  
  48Individual
  
  139
  
  193
  
  149
  
  121
  
  105Total recoveries
  of loans and leases charged off
  
  341
  
  270
  
  211
  
  248
  
  175Net loans
  charged off
  
  (942
  )
  (1,283
  )
  (1,395
  )
  (1,003
  )
  (1,827
  )Provision for
  loan and lease losses
  
  1,500
  
  2,500
  
  1,925
  
  1,200
  
  1,175ALLL assumed
  upon acquisition of Guaranty
  
  572
  
  
  
  
  
  
  
  ALLL assumed
  upon acquisition of Bucktail
  
  
  
  
  
  
  
  
  
  1,292Balance, end of
  year
  
  $
  6,204
  
  $
  5,074
  
  $
  3,857
  
  $
  3,327
  
  $
  3,130Ratios:Net charge-offs
  to average loans
  
  .19
  %
  .32
  %
  .40
  %
  .32
  %
  .69
  %ALLL to total
  loans at December 31
  
  1.20
  %
  1.23
  %
  1.01
  %
  1.00
  %
  .99
  %ALLL to total
  nonperforming loans
  
  164.61
  %
  192.63
  %
  116.88
  %
  88.84
  %
  70.75
  %  40 
   Investment
Securities Suns securities portfolio traditionally was composed almost entirely
of long-term mortgage pass-through securities. However, those instruments carry
significant market risk and extension risk due to prepayment volatility.
Management now maintains the investment portfolio to serve as a stable source
of supplemental liquidity and earnings.  Thus, managements portfolio strategy focuses on maximizing
risk-adjusted return through effective analysis of cash flows and embedded
options. Generally, Sun does not take material credit risk in its securities
portfolio. Suns investment activities emphasize instruments with
well-structured cash flows, competitive returns, and moderate market risk.
Through careful monitoring and transaction timing, management has reduced the
securities portfolios embedded market risk without a substantial decline in
aggregate yield. Management intends to pursue further risk reduction strategies
during 2002 whenever warranted.  Investment
securities contractual maturities as of December 31, 2001:  Within
  One Year Amortized
  
  After One
  But
  Within Five Years Amortized
  
  After Five
  But
  Within Ten Years Amortized
  
  After
  Ten Years Amortized
  
  Total
  Amortized(In Thousands)
  
  Cost
  
  Yield
  
  Cost
  
  Yield
  
  Cost
  
  Yield
  
  Cost
  
  Yield
  
  Cost
  
  YieldObligations of U.S.
  government 
  agencies
  
  $
  1,457
  
  4.52
  %
  $
  18,797
  
  6.03
  %
  $
  57,903
  
  6.36
  %
  $
  180,077
  
  5.35
  %
  $
  258,234
  
  5.62
  %Obligations of 
  states and political subdivisions (1)
  
  1,907
  
  6.03
  
  3,284
  
  8.91
  
  2,569
  
  11.69
  
  14,294
  
  12.35
  
  22,054
  
  11.23Corporate
  
  301
  
  1.82
  
  2,081
  
  6.00
  
  2,192
  
  8.82
  
  2,665
  
  7.40
  
  7,239
  
  7.17Total
  
  $
  3,665
  
  5.08
  %
  $
  24,162
  
  6.42
  %
  $
  62,664
  
  6.67
  
  $
  197,036
  
  5.89
  %
  287,527
  
  6.09Equity securities (2)
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  14,950Total investment securities
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  $
  302,477
  
  5.79
  %  
 (1) Tax-equivalent income calculated using a 34% federal income tax
rate. (2) Equity securities have no stated maturity or dividend rate.  41 
   Funding
Deposits: Suns total deposits increased $129,311,000, or 29.09%, to $573,877,000
at December 31, 2001, compared to $444,566,000 at December 31, 2000. The growth
in deposits is net of $123,778,000 acquired from the purchase of Guaranty Bank,
N.A. and $54,507,000 sold during the sale of the Emporium and Johnsonburg
branches.  In 2000, total deposits
increased $44,445,000, or 11.11%, from $400,121,000 at December 31, 1999.
During 2000, Sun recognized that low core deposit levels created reliance on
higher cost certificates of deposit and borrowed funds. This reliance increased
interest expense, decreased net interest income, and compressed the net
interest margin. Notably, Sun considers core funding to be only deposit
accounts without stated maturities. Such transaction and savings products
generally represent more lasting, lower cost relationships. In the fourth
quarter of 2000, Sun began a program to aggressively pursue increased core
deposits. That customer relationship management program is a core strategy for
2002 and beyond.  (In Thousands)
  
  2001
  
  % of
  Total
  
  % Change
  from Prior YearDecember 31,Demand deposits
  
  $
  58,063
  
  10.12
  %
  46.02
  %NOW accounts
  
  146,339
  
  25.50
  
  32.66Insured Money
  Market Accounts
  
  18,058
  
  3.15
  
  14.22Savings deposits
  
  70,422
  
  12.27
  
  74.54Time
  Certificates of Deposit of $100,000 or more
  
  49,484
  
  8.62
  
  11.24Other time
  deposits
  
  231,511
  
  40.34
  
  19.43Total deposits
  
  $
  573,877
  
  100.00
  %
  29.09
  %  (In Thousands)
  
  2000
  
  % of
  Total
  
  % Change
  from Prior YearDecember 31,Demand deposits
  
  $
  39,764
  
  8.94
  %
  5.24
  %NOW accounts
  
  110,309
  
  24.81
  
  12.50Insured Money
  Market Accounts
  
  15,810
  
  3.56
  
  (22.13
  )Savings deposits
  
  40,347
  
  9.08
  
  (6.98
  )Time
  Certificates of Deposit of $100,000 or more
  
  44,485
  
  10.01
  
  26.17Other time
  deposits
  
  193,851
  
  43.60
  
  17.24Total deposits
  
  $
  444,566
  
  100.00
  %
  11.11
  %  Other
Funding: Sun continued using borrowed funds to supplement deposits during 2001.
At December 31, 2001, the $222,000,000 in FHLB term advances included
$220,000,000 in variable rate advances. The variable rate advances balance
includes individual advances that mature between 2008 and 2010.  The remaining borrowed funds were $2,000,000 in fixed rate advances
maturing in 2002. FHLB advances are collateralized by pledged investment
securities (U.S. government agency debt) and first lien residential mortgage
loans. Other funding sources include deposit customers cash management
accounts (classified as securities sold under agreements to repurchase) and the
Treasury Tax and Loan Note Option. Sun continually monitors its borrowed funds
positions and market conditions in order to maintain an effective funding
structure. When appropriate, Sun may take future action to modify its borrowed
funds structure.  Net
Interest Income and Net Interest Margin Net interest income, the difference between interest income and
interest expense, is the largest component of Suns earnings. Net interest
margin (NIM) measures the difference between the interest earning assets yield
and the aggregate funding cost. The NIM is calculated as taxable equivalent net
interest income divided by average interest earning assets.  NIM narrowed by 34 basis points to 3.12% for 2001 compared to 3.46% for
2000.  That compression resulted
principally from increased funding costs incurred during 2000, primarily higher
cost certificates of deposit opened in the first half of 2000. Management
discontinued that funding approach in 2000 and refocused on increasing lower
cost core deposit balances. During 2001, a substantial portion of those
accounts did mature and may renew at different interest rates.  Net interest income was $23,735,000 for 2001, compared with $21,735,000
for the prior year. On a taxable equivalent basis, net interest income
increased $2,605,000 to $26,273,000 for 2001 versus $23,668,000 for the prior
year. The following table provides additional information related to net
interest income.  42 
   Average
Balances and Net Interest Income This table presents
average daily balance composition and net interest income on a fully taxable
equivalent basis:  (In
  Thousands)
  
  2001
  
  2000
  
  1999Average
  Balance
  
  Interest
  
  Rate
  
  Average
  Balance
  
  Interest
  
  Rate
  
  Average
  Balance
  
  Interest
  
  RateASSETSInterest-earning
  assets:Interest-bearing
  deposits
  
  $
  37,753
  
  $
  1,345
  
  3.56
  %
  $
  7,092
  
  $
  428
  
  6.03
  %
  $
  3,101
  
  $
  156
  
  5.03
  %Loans (net of
  unearned income) (1) (2)
  
  483,817
  
  40,555
  
  8.38
  
  399,517
  
  35,399
  
  8.86
  
  351,181
  
  30,097
  
  8.57Investments:Taxable
  
  298,346
  
  18,609
  
  6.24
  
  260,337
  
  18,201
  
  6.99
  
  241,875
  
  15,640
  
  6.47Tax exempt (2)
  
  21,950
  
  1,723
  
  7.85
  
  17,823
  
  1,465
  
  8.22
  
  30,802
  
  2,755
  
  8.94Total
  interest-earning assets
  
  841,866
  
  62,232
  
  7.39
  
  684,769
  
  55,493
  
  8.10
  
  626,959
  
  48,648
  
  7.76Noninterest-earning
  assets:Cash and due
  from banks
  
  15,082
  
  
  
  
  
  12,267
  
  
  
  
  
  11,291Bank premises
  & equipment
  
  13,604
  
  
  
  
  
  10,659
  
  
  
  
  
  9,502Intangible
  assets
  
  18,000
  
  
  
  
  
  9,041
  
  
  
  
  
  9,795Accrued interest and 
  other assets
  
  13,298
  
  
  
  
  
  12,059
  
  
  
  
  
  7,285Less:ALLL
  
  (5,807
  )
  
  
  
  
  (4,410
  )
  
  
  
  
  (3,592
  )Unamortized loan
  fees
  
  10
  
  
  
  
  
  50
  
  
  
  
  
  (141
  )Total assets
  
  $
  896,053
  
  
  
  
  
  $
  724,435
  
  
  
  
  
  $
  661,099LIABILITIES ANDSHAREHOLDERS
  EQUITYInterest-bearing
  liabilities:NOW Accounts
  
  $
  136,075
  
  3,285
  
  2.41
  %
  $
  94,374
  
  3,601
  
  3.82
  %
  $
  73,240
  
  2,118
  
  2.89
  %Insured Money
  Market Accounts
  
  20,945
  
  568
  
  2.71
  
  18,624
  
  724
  
  3.89
  
  21,975
  
  788
  
  3.58Savings deposits
  
  63,090
  
  1,241
  
  1.97
  
  43,849
  
  880
  
  2.01
  
  45,849
  
  915
  
  2.00Time deposits
  
  291,327
  
  16,070
  
  5.52
  
  224,690
  
  12,870
  
  5.73
  
  203,356
  
  11,059
  
  5.46Short-term
  borrowings
  
  17,270
  
  430
  
  2.49
  
  16,729
  
  853
  
  5.10
  
  20,408
  
  843
  
  4.13Subordinated
  debentures
  
  16,051
  
  1,578
  
  9.83
  
  
  
  
  
  
  
  
  
  
  
  Other borrowed
  funds
  
  222,000
  
  12,787
  
  5.76
  
  223,785
  
  12,897
  
  5.76
  
  190,692
  
  10,507
  
  5.51Total
  interest-bearing liabilities
  
  766,758
  
  35,959
  
  4.69
  
  622,051
  
  31,825
  
  5.12
  
  555,520
  
  26,230
  
  4.73Noninterest-bearing liabilities and shareholders
  equity:Demand deposits
  
  57,478
  
  
  
  
  
  40,840
  
  
  
  
  
  38,243Accrued interest and other liabilities
  
  3,610
  
  
  
  
  
  3,776
  
  
  
  
  
  3,799Shareholders
  equity
  
  68,207
  
  
  
  
  
  57,768
  
  
  
  
  
  63,537Total liabilities and shareholders equity
  
  $
  896,053
  
  
  
  
  
  $
  724,435
  
  
  
  
  
  $
  661,099Interest rate
  spread
  
  
  
  
  
  2.70
  %
  
  
  
  
  2.98
  %
  
  
  
  
  3.03
  %Net interest
  income/margin
  
  
  
  $
  26,273
  
  3.12
  %
  
  
  $
  23,668
  
  3.46
  %
  
  
  $
  22,418
  
  3.57
  %  
 (1) Average loan balances include non-accrual loans and interest income
includes fees on loans. (2) Yields on tax exempt loans and investments have been adjusted to a
fully taxable equivalent basis using a 34% federal income tax rate.  43 
   Volume
and Rates Changes in interest income and interest expense can result from
variances in both volume and rates. The following table shows an analysis of
the effect of volume and rate variances on taxable equivalent interest income,
interest expense, and net interest income.  2001
  Compared to 2000
  Increase (Decrease)
  
  2000
  Compared to 1999
  Increase (Decrease)(In
  Thousands)
  
  Volume
  
  Rate
  
  Net
  
  Volume
  
  Rate
  
  NetInterest earned
  on:Interest-bearing
  deposits
  
  $
  1,688
  
  $
  (771
  )
  $
  917
  
  $
  201
  
  $
  71
  
  $
  272Loans
  
  7,467
  
  (2,311
  )
  5,156
  
  4,142
  
  1,160
  
  5,302Investments:Taxable
  
  2,653
  
  (2,245
  )
  408
  
  1,308
  
  1,253
  
  2,561Tax exempt
  
  339
  
  (81
  )
  258
  
  (1,161
  )
  (129
  )
  (1,290
  )Total
  interest-earning assets
  
  12,147
  
  (5,408
  )
  6,739
  
  4,490
  
  2,355
  
  6,845Interest paid
  on:NOW Accounts
  
  1,597
  
  (1,913
  )
  (316
  )
  609
  
  874
  
  1,483Insured Money
  Market Accounts
  
  91
  
  (247
  )
  (156
  )
  (121
  )
  57
  
  (64
  )Savings deposits
  
  388
  
  (27
  )
  361
  
  (38
  )
  3
  
  (35
  )Time deposits
  
  3,823
  
  (623
  )
  3,200
  
  1,209
  
  602
  
  1,811Short-term
  borrowings
  
  28
  
  (451
  )
  (423
  )
  (152
  )
  162
  
  10Subordinated
  debentures
  
  1,578
  
  
  
  1,578
  
  
  
  
  
  Other borrowed
  funds
  
  (110
  )
  
  
  (110
  )
  1,824
  
  566
  
  2,390Total
  interest-bearing liabilities
  
  7,395
  
  (3,261
  )
  4,134
  
  3,331
  
  2,264
  
  5,595Net interest
  income
  
  $
  4,752
  
  $
  (2,147
  )
  $
  2,605
  
  $
  1,159
  
  $
  91
  
  $
  1,250  Income on tax exempt loans and investments have been adjusted to a
fully taxable equivalent basis using a 34% federal income tax rate.  Changes in interest income and interest expense attributable to the
combined impact of both volume and rate were allocated proportionately to the
changes due to volume and the changes due to rate.  44 
   Income
and Expense Changes The table below presents the consolidated comparative changes in income
and expense, and it reflects changes in average asset and liability volumes.
Tax exempt income is not shown on a tax equivalent basis.  2001
  Compared to 2000
  
  2000
  Compared to 1999Average
  
  Volumes
  
  Income/Expense
  
  Average
  
  Volumes
  
  Income/Expense(In
  Thousands)
  
  $Change
  
  % Change
  
  $Change
  
  % Change
  
  $Change
  
  % Change
  
  $Change
  
  % ChangeLoans, net
  
  $
  84,300
  
  21.10
  %
  $
  4,639
  
  13.67
  %
  $
  48,336
  
  13.76
  %
  $
  4,123
  
  13.82
  %Investment
  securities
  
  42,136
  
  15.15
  
  578
  
  3.02
  
  5,483
  
  2.01
  
  1,711
  
  9.80Interest-bearing
  deposits
  
  30,661
  
  394.81
  
  917
  
  214.25
  
  3,991
  
  128.70
  
  272
  
  174.36Total
  interest-earning assets
  
  $
  157,097
  
  22.94
  %
  $
  6,134
  
  11.45
  %
  $
  57,810
  
  9.22
  %
  $
  6,106
  
  12.87
  %NOW Accounts
  
  $
  41,701
  
  44.19
  %
  $
  (316
  )
  (8.78
  )%
  $
  21,134
  
  28.86
  %
  $
  1,483
  
  70.02
  %Insured Money
  Market Accounts
  
  2,321
  
  12.46
  
  (156
  )
  (21.55
  )
  (3,351
  )
  (15.25
  )
  (64
  )
  (8.12
  )Savings deposits
  
  19,241
  
  43.88
  
  361
  
  41.02
  
  (2,000
  )
  (4.36
  )
  (35
  )
  (3.83
  )Time deposits
  
  66,637
  
  29.66
  
  3,200
  
  24.86
  
  21,334
  
  10.49
  
  1,811
  
  16.38Short-term
  borrowings
  
  541
  
  3.23
  
  (423
  )
  (49.59
  )
  (3,679
  )
  18.03
  
  10
  
  1.19Subordinated
  debentures
  
  16,051
  
  100.00
  
  1,578
  
  100.00
  
  
  
  
  
  
  
  Other borrowed
  funds
  
  (1,785
  )
  .80
  
  (110
  )
  (.85
  )
  33,093
  
  17.35
  
  2,390
  
  22.75Total
  interest-bearing liabilities
  
  $
  144,707
  
  23.26
  %
  $
  4,134
  
  12.99
  %
  $
  66,531
  
  11.98
  %
  $
  5,595
  
  21.33
  %Net interest
  income
  
  
  
  
  
  $
  2,000
  
  9.20
  %
  
  
  
  
  $
  511
  
  2.41
  %Provision for
  loan and lease losses
  
  
  
  
  
  (1,000
  )
  40.00
  
  
  
  
  
  575
  
  29.87Net interest
  income after provision for loan and lease losses
  
  
  
  
  
  3,000
  
  15.60
  
  
  
  
  
  (64
  )
  .33Service charges
  on deposit accounts
  
  
  
  
  
  588
  
  44.71
  
  
  
  
  
  102
  
  8.41Trust income
  
  
  
  
  
  (152
  )
  (16.95
  )
  
  
  
  
  175
  
  24.24Net securities
  gains
  
  
  
  
  
  2,799
  
  143.17
  
  
  
  
  
  (3,917
  )
  199.64Income from
  insurance subsidiary
  
  
  
  
  
  (87
  )
  (32.22
  )
  
  
  
  
  47
  
  21.08Gain on sale of
  branches
  
  
  
  
  
  4,892
  
  100.00
  
  
  
  
  
  
  
  Other income
  
  
  
  
  
  175
  
  38.29
  
  
  
  
  
  (383
  )
  (45.60
  )Total other
  operating income
  
  
  
  
  
  9,508
  
  866.26
  
  
  
  
  
  (3,976
  )
  (80.16
  )Salaries and
  employee benefits
  
  
  
  
  
  2,361
  
  32.26
  
  
  
  
  
  1,115
  
  17.97Net occupancy
  and equipment expenses
  
  
  
  
  
  896
  
  48.59
  
  
  
  
  
  153
  
  9.05Pennsylvania
  shares tax
  
  
  
  
  
  99
  
  16.5
  
  
  
  
  
  47
  
  8.50Amortization of
  intangibles
  
  
  
  
  
  812
  
  107.55
  
  
  
  
  
  
  
  Expenses of
  insurance subsidiary
  
  
  
  
  
  (80
  )
  (42.11
  )
  
  
  
  
  61
  
  47.29Other expenses
  
  
  
  
  
  1,866
  
  55.09
  
  
  
  
  
  640
  
  23.30Total other
  operating expenses
  
  
  
  
  
  5,954
  
  42.24
  
  
  
  
  
  2,016
  
  (16.69
  )Income before
  income tax provision
  
  
  
  
  
  11,694
  
  90.95
  
  
  
  
  
  (6,056
  )
  (49.72
  )Income tax
  provision
  
  
  
  
  
  3,344
  
  119.13
  
  
  
  
  
  (1,899
  )
  (55.45
  )Net income
  
  
  
  
  
  $
  3,752
  
  81.60
  
  
  
  
  
  $
  (4,157
  )
  (47.48
  )%  45 
   Other
Operating Income Other operating income, excluding gain on sale of branches, increased
$3,632,000, or 369.11%, from 2000 to 2001. This increase resulted largely from
the recognition of $844,000 in security gains as compared to a $2,265,000
investment securities portfolio restructuring charge in the second quarter of
2000. Excluding net securities gains/losses, other operating income increased
$833,000, or 28.34%, from 2000 to 2001.  Service charges on deposit accounts demonstrated continued growth and
increased 44.71% in 2001. This growth resulted from increased transaction
account fee income, increased ATM usage fees and the acquisition of nine
branches during the first half of 2001. Management will continue pursuing ATM
expansion in high volume locations. Trust income decreased 16.95% during 2001
as the stock market decline caused the fair market value of the accounts to
decline which has a direct result on fees generated.  Other income increased $175,000, or 38.29%, from 2000 to 2001. Gains on
loan sales increased $105,000 from 2000 to 2001. In addition, gains of $71,000
were recognized on the sales of bank premises and equipment. The remaining
differences resulted from increased miscellaneous income and non-yield related
loan fees.  Changes in other operating income for the years ended December 31:  (In
  Thousands)
  
  2001
  
  % Change
  
  2000
  
  % Change
  
  1999Service charges on deposit accounts
  
  $
  1,903
  
  44.71
  %
  $
  1,315
  
  8.41
  %
  $
  1,213Trust income
  
  745
  
  (16.95
  )
  897
  
  24.24
  
  722Net securities
  gains (losses)
  
  844
  
  143.17
  
  (1,955
  )
  (199.64
  )
  1,962Income from
  insurance subsidiary
  
  183
  
  (32.22
  )
  270
  
  21.08
  
  223Income from
  investment sales
  
  309
  
  100.00
  
  
  
  
  
  Gain on sale of
  branches
  
  4,892
  
  100.00
  
  
  
  
  
  Other income
  
  632
  
  38.29
  
  457
  
  (45.60
  )
  840Total other
  operating income
  
  $
  9,508
  
  866.26
  %
  $
  984
  
  (80.16
  )%
  $
  4,960  Other
Operating Expenses Other operating expenses increased $5,954,000, or 42.24%, from 2000 to
2001. That increase resulted from several factors: Sun acquired nine branches
(37.5% of the current 24 branch network) during 2001; needed infrastructure
improvements were completed; and the former four trade names (Snyder County
Trust, Central Pennsylvania Bank, Watsontown Bank, and Bucktail Bank) were
consolidated under the SunBank brand.  Salaries and employee benefits increased $2,361,000, or 32.26%, from
2000 to 2001. The increase is the result of the addition of 66 full-time
equivalent employees during 2001 which was the result of the nine new
branches. In addition, furniture and equipment expenses increased 47.38% as Sun
completed several systems and infrastructure improvements and equipped the new
branches. Other expenses increased $1,866,000 from 2000 to 2001. The largest
component was Suns new marketing program, including enhanced customer analysis
systems, the new corporate identity, consolidated bank names, and advertising.
In addition, Sun incurred a significant increase in consulting fees related to
infrastructure improvements.  Changes in other operating expenses for the years ended December 31:  (In
  Thousands)
  
  2001
  
  % Change
  
  2000
  
  % Change
  
  1999Salaries and employee benefits
  
  $
  9,680
  
  32.26
  %
  $
  7,319
  
  17.97
  %
  $
  6,204Net occupancy
  expenses
  
  995
  
  50.78
  
  660
  
  1.07
  
  653Furniture and
  equipment expenses
  
  1,745
  
  47.38
  
  1,184
  
  14.07
  
  1,038Pennsylvania
  shares tax
  
  699
  
  16.50
  
  600
  
  8.50
  
  553Amortization of
  intangibles
  
  1,567
  
  107.55
  
  755
  
  
  
  755Expenses of
  insurance subsidiary
  
  110
  
  (42.11
  )
  190
  
  47.29
  
  129Other expenses
  
  5,253
  
  55.09
  
  3,387
  
  23.30
  
  2,747Total other
  operating expenses
  
  $
  20,049
  
  42.24
  %
  $
  14,095
  
  16.69
  %
  $
  12,079  46 
   Liquidity Management must ensure sufficient liquidity to meet current and future
business needs, including customer cash withdrawals and loan fundings. In
addition, management must maintain additional contingency liquidity sources to
meet unexpected needs. However, management must deploy Suns liquidity in a
prudently profitable manner.  Suns liquidity depends on its ability to acquire funds or convert
assets to cash without material loss. Suns primary liquidity sources include
regular principal and interest payments on loans and securities, short-term
securities, and various borrowing sources. Supplemental liquidity sources
include longer-term securities, lines of credit, and additional sources for new
deposits. Notably, management does not consider cash and due from banks amounts
to be liquidity sources. Those amounts are typically needed by banks for daily
operations. Refer to Note 10, Borrowed Funds, for detail regarding Suns
borrowing capacity. Management believes there are no identified trends,
demands, commitments, or uncertainties that negatively impact liquidity.  Market
Risk For Sun, market risk results predominantly from interest rate risk and
equity price risk. Although Suns market risks may change in the future,
management currently focuses its risk management efforts on those two
components.  Interest
Rate Risk (IRR): IRR represents the potential current or future earnings and capital
volatility due to interest rate changes. Interest rate fluctuations affect
earnings by changing net interest income and other interest-sensitive income
and expense levels. Interest rate changes affect capital by altering banks
economic value of equity (EVE). EVE represents the net present value of all
asset, liability, and off-balance sheet cash flows. Interest rate fluctuations
change the present values of those cash flows.  As financial intermediaries, banks can not completely avoid IRR.
However, excessive IRR can threaten earnings, capital, liquidity, and solvency.
IRR has many components, including repricing risk, basis risk, yield curve risk,
option risk, and price risk. Suns primary, but not sole, IRR source is balance
sheet optionality from residential mortgages and mortgage-backed securities.
Those assets may prepay principal at changing speeds depending on interest rate
levels and other factors beyond Suns control. When prepayments occur,
management must reinvest those cash flows at current market rates (in loans or
securities). Thus, future interest levels and paths may negatively (or
positively) affect Suns net interest income.  Sun seeks to minimize net interest income volatility by carefully
measuring, monitoring, and controlling IRR. Sun is implementing a comprehensive
market risk management program to dramatically enhance managements ability to
measure, monitor, and control risk. Market risk can result in fluctuating net
interest income due to interest rate and other economic changes. Using
simulation models, Sun can measure market risk by forecasting net interest
income volatility under various interest rate scenarios. However, these models
depend on many significant assumptions that may not accurately reflect future
conditions.  Rate
Shock Forecast at December 31, 2001:  Parallel
  rate shock in basis points (bp)(In
  Thousands)
  
  200bp*
  
  100bp*
  
  0bp
  
  +100bp
  
  +200bpInterest income:Loans
  
  $
  36,411
  
  $
  37,125
  
  $
  37,843
  
  $
  38,562
  
  $
  39,280Investments
  
  17,057
  
  17,547
  
  17,752
  
  18,055
  
  18,447Total interest
  income
  
  53,468
  
  54,672
  
  55,595
  
  56,617
  
  57,727Interest
  expense:Deposits
  
  12,617
  
  12,831
  
  13,056
  
  13,282
  
  13,507Borrowings
  
  6,007
  
  7,130
  
  8,476
  
  9,822
  
  11,168Total interest
  expense
  
  18,624
  
  19,961
  
  21,532
  
  23,104
  
  24,675Net interest
  income
  
  $
  34,844
  
  $
  34,711
  
  $
  34,063
  
  $
  33,513
  
  $
  33,052  
 *Given low current levels for certain short-term interest rates,
applying declining rate shocks would result in some negative interest rates. In order to avoid unrealistic conditions and results, floors were set
at 0.50%.  47 
   Equity
Price Risk: Suns equity securities consist of marketable equities and restricted
stock. Marketable equities consist entirely of common stocks, primarily of bank
and bank holding companies. Restricted stock consists almost entirely of FHLB
stock. Since FHLB stock is redeemable at par, Sun carries it at cost and
periodically evaluates the stock for impairment. Possible impairment factors
include  potential dramatic changes to
the housing and residential mortgage industry or the related regulatory
environment. Management currently does not believe any factors exist to suggest
potential impairment.  Bank and bank holding company stocks are subject to general industry
risks, including competition from non-bank entities, credit risk, interest rate
risk, and other factors. Individual stocks could suffer price decreases due to
circumstances at specific banks. In addition, Suns bank stock investments are
concentrated in Pennsylvania entities, so these investments could decline in
value if there were a downturn in the states economy. Other marketable stocks
are comprised of non-bank, exchange-traded stocks that are subject to typical
equity risks.  (In
  Thousands)December
  31,
  
  2001
  
  2000Cost
  
  Fair Value
  
  Cost
  
  Fair ValueMarketable
  equities
  
  $
  3,836
  
  $
  3,102
  
  $
  5,289
  
  $
  3,651Restricted stock
  
  11,114
  
  11,114
  
  12,630
  
  12,630Total
  
  $
  14,950
  
  $
  14,296
  
  $
  18,006
  
  $
  16,375  Until 2000, Sun had actively invested in both bank and non-bank
marketable equities. In 2000, management began a long-term program to gradually
reduce equity investments and risk exposure to a nominal amount. Management has
successfully reduced Suns marketable equity price risk exposure, as shown in
the table below:  December
  31,
  
  2001
  
  2000
  
  1999Cost
  
  $
  3,836,000
  
  $
  5,376,000
  
  $
  8,627,000Fair Value
  
  $
  3,182,000
  
  $
  3,745,000
  
  $
  6,336,000Unrealized Gain
  or (Loss)
  
  $
  (654,000
  )
  $
  (1,631,000
  )
  $
  (2,291,000
  )  Capital Adequacy Sun and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements could prompt regulatory action that, if undertaken, might
materially affect Suns financial statements. Under regulatory capital adequacy
guidelines, Sun and the Bank must meet specific capital requirements involving
quantitative measures of assets, liabilities, and certain off-balance sheet
items (calculated using regulatory accounting practices). All related factors
are subject to qualitative judgments by the regulators.  Sun is currently, and has been in the past, designated a
well-capitalized institution. Shareholders equity increased $14,984,000 to
$77,511,000 at December 31, 2001, from $62,527,000 at December 31, 2000. The
majority of the increase was the result of Sun issuing stock valued at
$8,198,000 for the purchase of Guaranty Bank. Unrealized gains or losses, net
of taxes, on securities available for sale are reported as accumulated other
comprehensive income (loss) within shareholders equity. Sun had unrealized
gains, net of tax,of $2,069,000 at December 31, 2001, and losses of $1,591,000
at December 31, 2000. During 2001, Sun paid $4,134,000 in cash dividends.
Management is not aware of any events or regulatory restrictions that would
have a material effect on Suns capital adequacy.  48 
   Regulation Various federal and state laws and regulations apply to banks and
govern business scope, lending, investments, reserves, capital, and other
activities. Banking laws and regulations have been developed primarily to
protect depositors rather than shareholders. 
The Banks deposits are insured by the FDIC to the extent provided by
law, for which the Bank must pay a quarterly assessment determined by the FDIC.
The Bank is also subject to numerous state and federal statutes and regulations
that affect its business and operations, and is supervised and examined by one
or more state or federal bank regulatory agencies. The federal state bank
regulatory agencies are empowered with considerable supervisory, examination,
and enforcement discretion. Any change in banking law, regulation, policies,
examination procedures, or corrective action remedies could have a material
impact on Sun or the Bank.  The Gramm-Leach-Bliley Act (GLBA) was enacted in November 1999 and most
provisions became effective in March 2000. The GLBA permits greater affiliation
among banks, securities firms, insurance companies, and other companies under a
new type of financial services company known as a financial holding company.
Financial holding companies may engage in a number of financial activities
previously impermissible or subject to regulatory limitations for bank holding
companies, including securities underwriting; dealing and market making;
sponsoring mutual funds and investment companies; insurance underwriting and
agency; and merchant banking activities.  Sun has not elected to become a financial holding company. Sun believes
the GLBA will not have a material adverse effect on near-term operations.
However, the GLBA may foster increased consolidation and competition in various
financial industry sectors. Although management has not identified any negative
conditions, such developments might negatively impact Sun in the future.  Outlook Entering 2001, management recognized challenges associated with
potentially deteriorating economic conditions, but also identified many
opportunities for improved performance. Many of those opportunities were seized
during 2001, including aggressively pursuing franchise expansion, new products
and services, credit quality improvement, enhanced risk management
capabilities, core deposit growth, and new fee income sources.  Sun believes franchise expansion will enhance shareholder value,
increase long-term earnings potential, and provide additional geographic
diversification. The Guaranty Bank, N.A. and Mellon branch acquisitions
expanded the Sun franchise into financial services markets with sizable growth
opportunities.  Management intends to continue building Suns brand of
community-focused commercial banking by: Emphasizing
customer relationship management. Growing
Suns core deposit base. Pursuing
quality loan growth. Increasing
fee income and developing new fee income sources. Expanding
Suns markets via expansion or strategic acquisitions. Improved
operational and service delivery capabilities.  Management will continually challenge its approach to enhance quality,
performance, and shareholder value.  49 
   Common
Stock Market Prices and Dividends Per Share The common stock of Sun Bancorp, Inc. is traded publicly on the NASDAQ
national market system under the symbol SUBI. The high and low bid information
does not include retail mark-ups or mark-downs or any commission to the
broker-dealer.  2001
  
  2000Bid
  Information
  
  Cash
  Dividends
  
  Bid
  Information
  
  Cash
  DividendsQuarter
  Ended
  
  High
  
  Low
  
  Paid
  
  High
  
  Low
  
  PaidMarch 31
  
  $
  15.73
  
  $
  13.38
  
  $
  .15
  
  $
  19.13
  
  $
  15.13
  
  $
  .24June 30
  
  16.50
  
  14.85
  
  .15
  
  16.81
  
  14.19
  
  .24September 30
  
  17.50
  
  14.65
  
  .15
  
  14.69
  
  12.63
  
  .15December 31
  
  17.50
  
  15.50
  
  .15
  
  14.38
  
  13.38
  
  .15  50 
   Market
Makers Include: Janney Montgomery Scott, Inc. 1801 Market Street Philadelphia, PA 19103-1675 1-800-526-6397  Janney Montgomery Scott, Inc. Wolfe Plaza 309 N. Fifth Street, Suite C Sunbury, PA 17801 1-800-831-2741  F. J. Morrissey & Co., Inc. 1700 Market Street, Suite 1420 Philadelphia, PA 19103 1-215-563-8500  Ferris, Baker, Watts 6 Bird Cage Walk Hollidaysburg, PA 16648 1-800-343-5149  First Tennessee Securities Corp. 845 Crossover Lane Memphis, TN 38117 1-800-456-5460  Legg Mason The Stadium Office Park, Suite 201 330 Montage Mountain Road Scranton, PA 18507 1-800-346-4346  Sandler ONeill & Partners, LP 919 Third Avenue Sixth Floor New York, NY 10022 1-800-635-6860  First Union Securities P.O. Box 1357 Richmond, VA 23218 1-800-627-8625  Ryan, Beck & Co. 80 Main Street West Orange, NJ 07052 1-800-342-2325  Merrill Lynch One West Third Street Williamsport, PA 17701 1-800-937-0769  Herzog, Heine & Geduld, Inc. 2 Penn Center, Suite 1708 Philadelphia, PA 19102 1-215-972-0813  Boenning & Scattergood, Inc. Four Tower Bridge 200 Barr Harbor Drive, Suite 300 West Conshohocken, PA 19428 1-800-883-8383  Spear, Leeds & Kellog 1900 Market Street Philadelphia, PA 19103 212-422-2405  51 
   Availability
of Form 10-K Upon written request of any shareholder, a copy of the Corporations
Annual Report on Form 10-K for its fiscal year ended December 31, 2001,
including the financial statements, and schedules thereto required to be filed
with the Securities and Exchange Commission pursuant to Rule 13a-l under the
Securities Exchange Act of 1934, as amended, may be obtained, without charge,
from Shareholder Services, 2 South Market Street, P.O. Box 57, Selinsgrove, PA
17870.  Information on Dividend Reinvestment
Plan A voluntary Dividend Reinvestment Plan is available to Sun
shareholders. Participants may elect full dividend reinvestment and/or optional
cash payments to purchase additional shares. Information about the plan may be
obtained by contacting Sun Bancorp, Inc., Shareholder Services, 2 South Market
Street, P.O. Box 57, Selinsgrove, PA 17870.  The Annual Report
and other Company reports are also filed electronically through the Electronic
Data Gathering Analysis and Retrieval System (EDGAR) which performs automated
collection, validation, indexing, acceptance, and forwarding of submissions to
the Securities and Exchange Commission (SEC) and is accessible by the public
using the Internet at http://www.sec.gov/edgarhp  The Annual Report,
other Company reports, and news releases are available on Suns website at
http://www.sunbankpa.com  52