<PAGE>   1
                                                                   EXHIBIT 13.1


                              SUN BANCSHARES, INC
                               2000 ANNUAL REPORT


<PAGE>   2
                              SUN BANCSHARES, INC.

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                 PAGE
                                                                                 ----

<S>                                                                             <C>
Shareholders' Letter................................................................2
Selected Financial Data.............................................................3
Management's Discussion and Analysis.............................................4-12
Independent Auditors' Report.......................................................13
Consolidated Balance Sheets........................................................14
Consolidated Statements of Income..................................................15
Consolidated Statements of Changes in Shareholders' Equity.........................16
Consolidated Statements of Cash Flows..............................................17
Notes to Consolidated Financial Statements......................................18-30
Directors and Officers.............................................................31
Corporate Data.....................................................................32
</TABLE>


<PAGE>   3


                             SUN BANCSHARES, INC.


Dear Shareholder:

On November 15, 2000, we successfully opened SunBank, N.A. and are very pleased
to report that our computer systems and operating programs came on line without
any significant glitches. Our success, in this regard, is a direct result of
having the right people in place. These are the same people that will deal with
our most valuable asset, SunBank customers. We are excited about the
opportunity to develop strong long-term relationships within our community. As
a community bank, we understand fully and accept the responsibility of putting
our customer first by providing personalized attention that can be hard to find
in larger institutions.

SunBank would not have become a reality without the commitment from our Board
of Directors. This is a local group of community and business leaders who are
committed to building a true community bank where decisions are made locally by
people you know and trust.

Although we opened in our modular building in the middle of the holiday season
with potential customers distracted by Thanksgiving, Christmas and normal
year-end activities, we still generated $1,939,343 in deposits and grew assets
to $8,028,376 during a short fiscal period of forty-six (46) days.
Additionally, we were also able to develop a loan pipeline of approximately
$3,000,000 of loans that have been, for the most part, successfully closed
since year-end. Finally, we were also able to finalize pre-opening and
organizational accounting allocations and begin our new fiscal year on January
1, 2001.

While we develop a customer base from our temporary modular office in Murrells
Inlet, we are also moving forward with the construction of our permanent office
at the corner of U. S. Highway 17 and Riverwood Drive. We anticipate
construction to begin later this summer of a two-story building containing
approximately 10,000 square feet. The Georgetown office construction is well
underway and should be completed during June, allowing us to open a full
service bank in Georgetown during July. Our Market Manager, Lynn Wood Wilson,
has been very active in the Georgetown community promoting SunBank and
developing business in anticipation of our opening. We have been very well
received and have obtained commitments from folks who are ready to move their
banking relationship to SunBank.

We believe we have the right foundation in place to move forward with our
vision of building a strong community financial institution.

Finally, but most importantly, we want to thank you, our Shareholder for making
SunBank a reality. We pledge to commit all of our energy and resources to
adding shareholder value to your investment.


Sincerely,


/s/ Thomas Bouchette                                 /s/ Dalton B. Floyd, Jr.

Thomas Bouchette                                     Dalton B. Floyd, Jr.
President/CEO                                        Chairman


                                       2
<PAGE>   4


                             SUN BANCSHARES, INC.

                            SELECTED FINANCIAL DATA

The following selected financial data for the year ended December 31, 2000 and
for the period August 3, 1999 to December 31, 1999 is derived from the
financial statements and other data of the Company. The financial statements
for the year ended December 31, 2000 and for the period August 3, 1999 to
December 31, 1999, were audited by Tourville, Simpson & Caskey, L.L.P.,
independent auditors. The selected financial data should be read in conjunction
with the financial statements of the Company, including the accompanying notes,
included elsewhere herein.


<TABLE>
<CAPTION>
                                                                        2000                   1999
                                                                      -------                  -----
(Dollars in thousands)
<S>                                                                   <C>                      <C>
INCOME STATEMENT DATA:
   Interest income                                                    $    67                  $  67
   Interest expense                                                        59                      1
                                                                      -------                  -----
   Net interest income (expense)                                            8                     (1)
   Provision for loan losses                                               15                     --
                                                                      -------                  -----
   Net interest income after provision for loan losses                     (7)                    (1)
   Noninterest income                                                      --                     --
   Noninterest expense                                                    698                    164
                                                                      -------                  -----
   Income (loss) before income taxes                                     (705)                  (165)
   Income tax expense (benefit)                                          (150)                    --
                                                                      -------                  -----
   Net income (loss)                                                  $  (555)                 $(165)
                                                                      =======                  =====

BALANCE SHEET DATA:
   Assets                                                             $ 8,028                  $  85
   Earning assets                                                       7,110                     --
   Loans (1)                                                              905                     --
   Allowance for loan losses                                              (15)                    --
   Deposits                                                             1,939                     --
   Borrowings                                                              --                    250
   Shareholders' equity                                                 6,060                   (165)

PER-SHARE DATA:
   Earnings (losses) per-share                                        $ (4.73)                 $  --
   Book value (period end)                                               8.47                     --
   Tangible book value (period end)                                      8.47                     --

CAPITAL AND LIQUIDITY RATIOS:
   Leverage (4.00% required minimum)                                    81.09%                    --
   Risk-based capital
     Tier 1                                                            204.94                     --
     Total                                                             205.44                     --
</TABLE>

---------
(1)      Loans are stated at gross amounts before allowance for loan losses.


                                       3
<PAGE>   5


                             SUN BANCSHARES, INC.

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                             BASIS OF PRESENTATION

The following discussion should be read in conjunction with the preceding
"Selected Financial Data" and the Company's Financial Statements and the Notes
thereto and the other financial data included elsewhere in this Annual Report.
The financial information provided below has been rounded in order to simplify
its presentation. However, the ratios and percentages provided below are
calculated using the detailed financial information contained in the Financial
Statements, the Notes thereto and the other financial data included elsewhere
in this Annual Report.

                                    GENERAL

Sun Bancshares, Inc., (the "Company") was incorporated as a South Carolina
corporation on August 3, 1999, and became a bank holding company by acquiring
all the issued and outstanding common stock of SunBank, N.A., (the "Bank"), in
Murrells Inlet, South Carolina. The Bank began operations on November 15, 2000
and is the only subsidiary of the Company.

The Bank was chartered as a national bank and began business November 15, 2000
as a full-service commercial bank. The Bank offers personal and business
checking accounts, money market accounts, savings accounts and various
certificates of deposit and individual retirement accounts. The Bank also
offers commercial, real estate, installment and other consumer loans. The
Bank's real estate loans include commercial real estate, construction and
development and residential real estate loans. In addition, the Bank provides
such services as cashier's checks, safe-deposit boxes, traveler's checks, bank
by mail, direct deposit and U.S. Savings Bonds. The Bank also offers MasterCard
and Visa credit card services through a correspondent bank.

We plan to begin construction of our permanent main office facility, at 4200
Highway 17 Bypass in Murrells Inlet, South Carolina in Georgetown County, in
the first quarter of 2001. Our permanent main office will be a two-story,
traditional style building. We anticipate completion of the building in the
fourth quarter of 2001. This area is the central location for business,
residential, community and shopping in Murrells Inlet and is on a major highway
serving the community.

We have begun construction of our branch office located at 1134 North Fraser
Street in Georgetown, South Carolina. The branch office will be a one story,
traditional style building with three drive-up windows and one ATM. We
anticipate completion of the building in June 2001. The branch office is
located in a high growth area in Georgetown near a new Wal-Mart Super Center
and the Georgetown Hospital.

Organizing activities for the Company began in August 1999. Upon the completion
of the application process with the Office of the Comptroller of the Currency
for a national bank charter and with the Federal Deposit Insurance Corporation
for deposit insurance, the Company was ready to issue stock. In its initial
public stock offering of October 27, 2000, the Company sold 715,000 shares of
its common stock at a price of $10.00 per share. The offering resulted in
capital totaling $6,779,216, net of selling expenses of $370,784. The Bank
began operations on November 15, 2000 at 4367 Riverwood Drive, Murrells Inlet,
South Carolina 29576. The following discussion should be read with an
understanding of the Company's short history.


                                       4
<PAGE>   6


                             SUN BANCSHARES, INC.

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                             RESULTS OF OPERATIONS

A comparison between 2000 and 1999 is not relevant since the Bank was only open
for business 1.5 months in 2000.

For the year ended December 31, 2000

Net interest income for the year ended December 31, 2000 was $7,984. Total
interest income was $67,229 and was partially offset by interest expense of
$59,245. The primary components of interest income were interest from federal
funds sold of $60,255 and interest from loans including fees, of $5,748.

The provision for loan losses was $15,000 in 2000. The charges to the provision
were primarily to maintain the allowance for loan losses at a level sufficient
to cover known and inherent losses in the loan portfolio.

Noninterest income for the year ended December 31, 2000 totaled $324.

Noninterest expense for the year ended December 31, 2000 totaled $698,129.
Noninterest expense included $674,702 in pre-opening expenses. Salaries and
employee benefits totaled $281,287 for the year. Salaries included the cost of
key personnel employed during the organizational process. Other operating
expenses totaled $254,445 for the year. These expenses included a number of
one-time expenses associated with opening the Bank.

The Company's net loss for the year ended December 31, 2000 was $554,821. The
net loss for the year is after the recognition of an income tax benefit of
$150,000. As stated earlier, the net loss includes pre-opening expenses of
$674,702.

For the period August 3, 1999 to December 31, 1999

This period covered the initial organizational phase of the Company. Expenses
totaling $164,796 were incurred during this period to organize and form the
Company and the Bank.

                              NET INTEREST INCOME

General. Net interest income is the difference between the income earned on
assets and interest paid on deposits and borrowings used to support such
assets. Net interest income is determined by the yields earned on the Company's
interest-earning assets and the rates paid on its interest-bearing liabilities,
the relative amounts of interest-earning assets and interest-bearing
liabilities, and the degree of mismatch and the maturity and repricing
characteristics of its interest-earning assets and interest-bearing
liabilities. Net interest income divided by average interest-earning assets
represents the Company's net interest margin.

Average Balances, Income and Expenses and Rates. The table providing
information relating to the Company's average balance sheet and average yields
on assets and average costs on liabilities has not been presented due to the
short period of time the Bank was open for business.

Analysis of Changes in Net Interest Income. Due to 2000 being the year of
commencement, all interest income and expense is attributable to the volume of
earning assets and interest-bearing liabilities, respectively.

Interest Sensitivity. The Company monitors and manages the pricing and maturity
of its assets and liabilities in order to diminish the potential adverse impact
that changes in interest rates could have on its net interest income. The
principal monitoring technique employed by the Company is the measurement of
the Company's interest sensitivity "gap," which is the positive or negative
dollar difference between assets and liabilities that are subject to interest
rate repricing within a given period of time. Interest rate sensitivity can be
managed by repricing assets or liabilities, selling securities available for
sale, replacing an asset or liability at maturity, or adjusting the interest
rate during the life of an asset or liability. Managing the amount of assets
and liabilities repricing in this same time interval helps to hedge the risk
and minimize the impact on net interest income of rising or falling interest
rates.


                                       5
<PAGE>   7


                             SUN BANCSHARES, INC.

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                        NET INTEREST INCOME (continued)

The following table sets forth the Company's interest rate sensitivity at
December 31, 2000.

INTEREST SENSITIVITY ANALYSIS


<TABLE>
<CAPTION>

                                                      AFTER ONE     AFTER THREE                  GREATER THAN
                                                       THROUGH        THROUGH                      ONE YEAR
                                       WITHIN ONE      THREE          TWELVE         WITHIN        OR NON-
 (Dollars in thousands)                   MONTH        MONTHS         MONTHS        ONE YEAR      SENSITIVE       TOTAL
                                       ----------     ---------     -----------     --------     ------------    ------
<S>                                    <C>            <C>           <C>             <C>          <C>             <C>
ASSETS
Earning Assets
Loans                                    $   50        $  301        $   131         $  482        $  423        $  905
Nonmarketable securities                     --            --             --             --           195           195
Federal funds sold                        6,010            --             --          6,010            --         6,010
                                         ------        ------        -------         ------        ------        ------
Total earning assets                      6,060           301            131          6,492           618         7,110
                                         ------        ------        -------         ------        ------        ------

LIABILITIES
Interest-bearing liabilities:
Interest-bearing deposits:
Demand deposits                             171            --             --            171            --           171
Savings deposits                          1,175            --             --          1,175            --         1,175
Time deposits                                --            28            358            386            --           386
                                         ------        ------        -------         ------        ------        ------
Total interest-bearing deposits           1,346            28            358          1,732            --         1,732
Total interest-bearing liabilities        1,346            28            358          1,732            --         1,732
                                         ------        ------        -------         ------        ------        ------
Period gap                               $4,714        $  273        $  (227)        $4,760        $  618
                                         ======        ======        =======         ======        ======
Cumulative gap                           $4,714        $4,987        $ 4,760         $4,760        $5,378
                                         ======        ======        =======         ======        ======
Ratio of cumulative gap to total          66.30%        70.14%         66.95%         66.95%        75.64%
 earning assets
</TABLE>


The above table reflects the balances of interest-earning assets and
interest-bearing liabilities at the earlier of their repricing or maturity
dates. Overnight federal funds sold are reflected at the earliest pricing
interval due to the immediately available nature of the instruments. Debt
securities are reflected at each instrument's ultimate maturity date. Scheduled
payment amounts of fixed rate amortizing loans are reflected at each scheduled
payment date. Scheduled payment amounts of variable rate amortizing loans are
reflected at each scheduled payment date until the loan may be repriced
contractually; the unamortized balance is reflected at that point.
Interest-bearing liabilities with no contractual maturity, such as savings
deposits and interest-bearing transaction accounts, are reflected in the
earliest repricing period due to contractual arrangements which give the
Company the opportunity to vary the rates paid on those deposits within a
thirty-day or shorter period. Fixed rate time deposits, principally
certificates of deposit, are reflected at their contractual maturity date.

The Company generally would benefit from increasing market rates of interest
when it has an asset-sensitive gap position and generally would benefit from
decreasing market rates of interest when it is liability-sensitive. The Company
is asset sensitive over all periods presented. However, the Company's gap
analysis is not a precise indicator of its interest sensitivity position. The
analysis presents only a static view of the timing of maturities and repricing
opportunities, without taking into consideration that changes in interest rates
do not affect all assets and liabilities equally. For example, rates paid on a
substantial portion of core deposits may change contractually within a
relatively short time frame, but those rates are viewed by management as
significantly less interest-sensitive than market-based rates such as those
paid on non-core deposits. Accordingly, management believes an asset-sensitive
gap position is not as indicative of the Company's true interest sensitivity as
it would be for an organization which depends to a greater extent on purchased
funds to support earning assets. Net interest income may be impacted by other
significant factors in a given interest rate environment, including changes in
the volume and mix of earning assets and interest-bearing liabilities.


                                       6
<PAGE>   8


                             SUN BANCSHARES, INC.

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                    PROVISION AND ALLOWANCE FOR LOAN LOSSES

General. The Company has developed policies and procedures for evaluating the
overall quality of its credit portfolio and the timely identification of
potential problem credits. On a quarterly basis, the Company's Board of
Directors reviews and approves the appropriate level for the Company's
allowance for loan losses based upon management's recommendations, the results
of the internal monitoring and reporting system, and an analysis of economic
conditions in its market. The objective of management has been to fund the
allowance for loan losses at approximately 1.50% to 1.75% of total loans
outstanding until a history is established.

Additions to the allowance for loan losses, which are expensed as the provision
for loan losses on the Company's income statement, are made periodically to
maintain the allowance at an appropriate level based on management's analysis
of the potential risk in the loan portfolio. Loan losses and recoveries are
charged or credited directly to the allowance. The amount of the provision is a
function of the level of loans outstanding, the level of nonperforming loans,
historical loan loss experience, the amount of loan losses actually charged
against the reserve during a given period, and current and anticipated economic
conditions.

The Company's allowance for loan losses is based upon judgments and assumptions
of risk elements in the portfolio, future economic conditions, and other
factors affecting borrowers. The process includes identification and analysis
of loss potential in various portfolio segments utilizing a credit risk grading
process and specific reviews and evaluations of significant problem credits. In
addition, management monitors the overall portfolio quality through observable
trends in delinquency, chargeoffs, and general and economic conditions in the
service area. The adequacy of the allowance for loan losses and the
effectiveness of the Company's monitoring and analysis system are also reviewed
periodically by the banking regulators and the Company's independent auditors.

Based on present information and an ongoing evaluation, management considers
the allowance for loan losses to be adequate to meet presently known and
inherent risks in the loan portfolio. Management's judgment about the adequacy
of the allowance is based upon a number of assumptions about future events
which it believes to be reasonable but which may or may not be accurate. Thus,
there can be no assurance that chargeoffs in future periods will not exceed the
allowance for loan losses or that additional increases in the allowance for
loan losses will not be required. The Company does not allocate the allowance
for loan losses to specific categories of loans but evaluates the adequacy on
an overall portfolio basis utilizing a risk grading system.

The following table sets forth certain information with respect to the
Company's allowance for loan losses for the year ended December 31, 2000.

ALLOWANCE FOR LOAN LOSSES


<TABLE>
<CAPTION>
(Dollars in thousands)                                                         2000
                                                                               ----

<S>                                                                            <C>
Total loans outstanding at end of period                                       $ 905
                                                                               -----
Average loans outstanding (annualized)                                         $  47
                                                                               =====
Balance of allowance for loan losses at beginning of period                    $  --
Loan losses:
  Commercial, financial and agricultural                                          --
  Real estate - mortgage
  Consumer                                                                        --
                                                                               -----
      Total loan losses                                                           --
                                                                               -----
Recoveries of previous loan losses:
  Commercial, financial and agricultural                                          --
  Real estate - mortgage
  Consumer                                                                        --
                                                                               -----
      Total recoveries                                                            --
                                                                               -----
Net loan losses                                                                   --
Provision for loan losses                                                         15
                                                                               -----
Balance of allowance for loan losses at end of period                          $  15
                                                                               =====
Allowance for loan losses to period end loans                                   1.66%
</TABLE>


                                       7
<PAGE>   9


                              SUN BANCSHARES, INC.

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

              PROVISION AND ALLOWANCE FOR LOAN LOSSES (continued)

Nonperforming Assets.  There were no nonperforming assets at December 31, 2000.

Accrual of interest is discontinued on a loan when management believes, after
considering economic and business conditions and collection efforts, that the
borrower's financial condition is such that the collection of interest is
doubtful. A delinquent loan is generally placed in nonaccrual status when it
becomes 90 days or more past due. When a loan is placed in nonaccrual status,
all interest which has been accrued on the loan but remains unpaid is reversed
and deducted from current earnings as a reduction of reported interest income.
No additional interest is accrued on the loan balance until the collection of
both principal and interest becomes reasonably certain. When a problem loan is
finally resolved, there may ultimately be an actual write-down or chargeoff of
the principal balance of the loan which would necessitate additional charges to
earnings. For all periods presented, the additional interest income, which
would have been recognized into earnings if the Company's nonaccrual loans had
been current in accordance with their original terms, is immaterial.

Potential Problem Loans. At December 31, 2000, the Company had not identified
any criticized or classified loans through its internal review mechanisms. The
results of this internal review process are considered in determining
management's assessment of the adequacy of the allowance for loan losses.
However, the overall objective of the Company has been to maintain the
allowance for loan losses at approximately 1.50% to 1.75% of total loans to
provide for potential problem loans.

                         NONINTEREST INCOME AND EXPENSE

Noninterest Income. Total noninterest income was $324 for the year ended
December 31, 2000.

Noninterest Expense. Salaries and employee benefits, which totaled $281,287 for
the year ended December 31, 2000, comprised the largest component of
noninterest expense. Of this total, $207,523 related to salaries prior to the
Bank's opening on November 15, 2000. Occupancy expense totaled $155,577 for the
year ended December 31, 2000. Included in this total is rent expense of
$123,467, of which $101,542 was incurred before the Bank opened. Other
operating expense totaled $254,445 for the year. The majority of these expenses
were associated with organizing the Bank and the Company.

The following table sets forth the primary components of noninterest expense
for the year ended December 31, 2000, and for the period August 3, 1999 to
December 31, 1999.


<TABLE>
<CAPTION>


(Dollars in thousands)                                    2000                    1999
                                                          ----                    ----

<S>                                                       <C>                     <C>
Salaries and employee benefits                            $281                    $ 50
Rent expense                                               123                      --
Other occupancy expense                                     32                      --
Furniture and equipment expense                              7                      --
Professional fees                                           91                      80
Office supplies, forms, and stationery                      37                       6
Data processing                                             46                      --
Other                                                       81                      28
                                                          ----                    ----

 Total                                                    $698                    $164
                                                          ====                    ====
</TABLE>


                                       8
<PAGE>   10


                             SUN BANCSHARES, INC.

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                                 EARNING ASSETS

Loans. Loans typically provide higher yields than the other types of earning
assets. Associated with the higher loan yields are the inherent credit and
liquidity risks which management attempts to control and counterbalance. At
December 31, 2000, total loans were $905,147.

The following table sets forth the composition of the loan portfolio by
category at December 31, 2000.

COMPOSITION OF LOAN PORTFOLIO


<TABLE>
<CAPTION>

                                                     2000
                                         ---------------------------
(Dollars in thousands)                    AMOUNT    PERCENT OF TOTAL
                                         -------   -----------------
<S>                                      <C>       <C>
Commercial and industrial                $ 398           43.98%
Real estate:
  Mortgage-residential                     211           23.31
Consumer and other                         296           32.71
                                         -----          ------
    Total loans                            905          100.00%
                                                        ======
Allowance for loan losses                  (15)
                                         -----
   Net loans                             $ 890
                                         =====
</TABLE>


The largest component of loans in the Company's loan portfolio is commercial
and industrial loans. At December 31, 2000, commercial and industrial loans
totaled $397,833 and represented 43.98% of the total loan portfolio.

Real estate mortgage loans-residential totaled $210,910 at December 31, 2000.
Residential real estate loans consist of first and second mortgages on single
or multi-family residential dwellings. The Bank had no nonresidential mortgage
loans at December 31, 2000, which include commercial loans and other loans
secured by multi-family properties and farmland. The demand for residential and
commercial real estate loans in the Murrells Inlet market has remained stable.

In the context of this discussion, a "real estate mortgage loan" is defined as
any loan, other than loans for construction purposes, secured by real estate,
regardless of the purpose of the loan. It is common practice for financial
institutions in the Company's market area to obtain a security interest in real
estate whenever possible, in addition to any other available collateral. This
collateral is taken to reinforce the likelihood of the ultimate repayment of
the loan and tends to increase the magnitude of the real estate loan portfolio
component.

Consumer and other loans totaled $296,404 at December 31, 2000 and comprised
32.71% of the total portfolio.

The Company's loan portfolio reflects the diversity of its market. The
Company's home office is located in Murrells Inlet, South Carolina. The economy
of Murrells Inlet is heavily influenced by the restaurant and tourism industry.
The close proximity to Myrtle Beach and the beaches of Litchfield and Pawleys
Island make the area a popular tourist destination. As discussed, the Bank
plans to also open a branch in Georgetown. While Georgetown is also affected by
the coast, it contains elements of medium and light manufacturing such as paper
mills.

The repayment of loans in the loan portfolio as they mature is also a source of
liquidity for the Company. The following table sets forth the Company's loans
maturing within specified intervals at December 31, 2000.


                                       9
<PAGE>   11


                             SUN BANCSHARES, INC.

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                           EARNING ASSETS (continued)

LOAN MATURITY SCHEDULE AND SENSITIVITY TO CHANGES IN INTEREST RATES


<TABLE>
<CAPTION>

                                                          OVER ONE
                                                            YEAR
December 31, 2000                     ONE YEAR OR          THROUGH            OVER FIVE
 (Dollars in thousands)                  LESS             FIVE YEARS            YEARS               TOTAL
                                      -----------         ----------          ---------             -----
<S>                                   <C>                 <C>                 <C>                   <C>
Commercial and industrial                $235                $163                $ --                $398
Real estate                               161                  50                  --                 211
Consumer and other                         86                 191                  19                 296
                                         ----                ----                ----                ----
                                         $482                $404                $ 19                $905
                                         ----                ----                ----                ----

 Loans maturing after one year with:
   Fixed interest rates                                                                              $423
   Floating interest rates                                                                             --
                                                                                                     ----
                                                                                                     $423
                                                                                                     ====
</TABLE>


The information presented in the above table is based on the contractual
maturities of the individual loans, including loans which may be subject to
renewal at their contractual maturity. Renewal of such loans is subject to
review and credit approval as well as modification of terms upon their
maturity. Consequently, management believes this treatment presents fairly the
maturity and repricing structure of the loan portfolio shown in the above
table.

Short-Term Investments. Short-term investments, which consist primarily of
federal funds sold, totaled $6,010,000 at December 31, 2000. These funds are an
important source of the Company's liquidity. Federal funds are generally
invested in an earning capacity on an overnight basis. Excess funds from the
stock offering have been invested in overnight federal funds until the funds
are needed to invest in higher yielding loans.

                                    DEPOSITS

At December 31, 2000, total deposits were $1,939,343.

The following table sets forth the deposits of the Company by category as of
December 31, 2000.

DEPOSITS


<TABLE>
<CAPTION>

                                                             2000
                                                 ----------------------------
(Dollars in thousands)                           AMOUNT      PERCENT OF TOTAL
                                                 -------     ----------------
<S>                                              <C>         <C>
Demand deposit accounts                          $  207           10.68%
NOW accounts                                        171            8.82
Money market accounts                             1,166           60.14
Savings accounts                                      9            0.46
Time deposits less than $100,000                    219           11.29
Time deposits of $100,000 or over                   167            8.61
                                                 ------          ------
     Total deposits                              $1,939          100.00%
                                                 ======          ======
</TABLE>


Core deposits, which exclude certificates of deposit of $100,000 or more,
provide a relatively stable funding source for the Company's loan portfolio and
other earning assets. The Company's core deposits were $1,772,376 at December
31, 2000.


                                      10
<PAGE>   12


                             SUN BANCSHARES, INC.

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                              DEPOSITS (continued)

Deposits, and particularly core deposits, have been the Company's primary
source of funding and have enabled the Company to meet successfully both its
short-term and long-term liquidity needs. Management anticipates that such
deposits will continue to be the Company's primary source of funding in the
future. The Company's loan-to-deposit ratio was 46.67% at December 31, 2000.
The maturity distribution of the Company's time deposits $100,000 and over at
December 31, 2000, is set forth in the following table:

MATURITIES OF CERTIFICATES OF DEPOSIT OF $100,000 OR MORE


<TABLE>
<CAPTION>

                                                                                     AFTER SIX
                                                                     AFTER THREE      THROUGH
                                                      WITHIN THREE   THROUGH SIX       TWELVE      AFTER TWELVE
(Dollars in thousands)                                   MONTHS         MONTHS         MONTHS         MONTHS         TOTAL
                                                      ------------   -----------     ---------     ------------     ------
<S>                                                   <C>            <C>             <C>           <C>              <C>
 Certificates of deposit of $100,000 or more             $ --           $ --           $ 167          $ --          $ 167
</TABLE>

All time deposits of $100,000 or more had maturities within twelve months.
Large certificate of deposit customers tend to be extremely sensitive to
interest rate levels, making these deposits less reliable sources of funding
for liquidity planning purposes than core deposits.

                                    CAPITAL

The Federal Reserve Board and bank regulatory agencies require bank holding
companies and financial institutions to maintain capital at adequate levels
based on a percentage of assets and off-balance-sheet exposures, adjusted for
risk weights ranging form 0% to 100%. Under the risk-based standard, capital is
classified into two tiers. Tier 1 capital of the Company consists of common
shareholders' equity minus certain intangible assets. Tier 2 capital consists
of the allowance for loan losses subject to certain limitations. A bank holding
company's qualifying capital base for purposes of its risk-based capital ratio
consists of the sum of its Tier 1 and Tier 2 capital. The regulatory minimum
requirements are 4% for Tier 1 and 8% for total risk-based capital. The holding
company and banking subsidiary are also required to maintain capital at a
minimum level based on average assets, which is known as the leverage ratio.
Only the strongest bank holding companies and banks are allowed to maintain
capital at the minimum requirement. All others are subject to maintaining
ratios 100 to 200 basis points above the minimum.

RISK-BASED CAPITAL RATIOS


<TABLE>
<CAPTION>
 (Dollars in thousands)                                THE BANK             THE COMPANY
                                                       --------             -----------
<S>                                                    <C>                  <C>
December 31, 2000
  Tier 1 capital                                        $5,950                 $6,060
  Tier 2 capital                                            15                     15
                                                        ------                 ------
     Total qualifying capital                           $5,965                 $6,075
                                                        ======                 ======

Risk-adjusted total assets
 (including off-balance-sheet exposures)                $2,957                 $2,957
                                                        ======                 ======

Total assets                                            $8,026                 $8,028
                                                        ======                 ======

Risk-based capital ratios:
  Tier 1 risk-based capital ratio                       201.24%                204.94%
  Total risk-based capital ratio                        201.75%                205.44%
  Tier 1 leverage ratio                                  79.63%                 81.09%
</TABLE>


                                      11
<PAGE>   13


                             SUN BANCSHARES, INC.

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                   LIQUIDITY MANAGEMENT AND CAPITAL RESOURCES

Liquidity management involves monitoring the Company's sources and uses of
funds in order to meet its day-to-day cash flow requirements while maximizing
profits. Liquidity represents the ability of a Company to convert assets into
cash or cash equivalents without significant loss and to raise additional funds
by increasing liabilities. Without proper liquidity management, the Company
would not be able to perform the primary function of a financial intermediary
and would, therefore, not be able to meet the needs of the communities it
serves.

Liquidity management is made more complex because different balance sheet
components are subject to varying degrees of management control. For example,
the timing of maturities of the investment portfolio is very predictable and
subject to a high degree of control at the time investment decisions are made.
However, net deposit inflows and outflows are far less predictable and are not
subject to nearly the same degree of control.

                              IMPACT OF INFLATION

Unlike most industrial companies, the assets and liabilities of financial
institutions such as the Company are primarily monetary in nature. Therefore,
interest rates have a more significant effect on the Company's performance than
do the effects of changes in the general rate of inflation and change in
prices. In addition, interest rates do not necessarily move in the same
direction or in the same magnitude as the prices of goods and services. As
discussed previously, management seeks to manage the relationships between
interest sensitive assets and liabilities in order to protect against wide
interest rate fluctuations, including those resulting from inflation.

                   ACCOUNTING AND FINANCIAL REPORTING ISSUES

In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities,
effective for fiscal years beginning after June 15, 2000. This Statement
establishes accounting and reporting standards for derivative instruments and
hedging activities, including certain derivative instruments embedded in other
contracts, and requires that an entity recognize all derivatives as assets or
liabilities in the balance sheet and measure them at fair value. The accounting
for changes in the fair value of a derivative depends on how the derivative is
used and how the derivative is designated. The Company adopted SFAS No. 133 on
July 1, 2000. The adoption of SFAS No. 133 did not have a material impact on
the consolidated financial statements.

                             INDUSTRY DEVELOPMENTS

On November 4, 1999, the U.S. Senate and House of Representatives each passed
the Gramm-Leach-Bliley Act, previously known as the Financial Services
Modernization Act of 1999. The Act was signed into law by President Clinton in
November 1999. Among other things, the Act repeals the restrictions on banks
affiliating with securities firms contained in sections 20 and 32 of the
Glass-Steagall Act. The Act also creates a new "financial holding company"
under the Bank Holding Company Act, which will permit holding companies to
engage in a statutorily provided list of financial activities, including
insurance and securities underwriting and agency activities, merchant banking,
and insurance company portfolio investment activities. The Act also authorizes
activities that are "complementary" to financial activities. The Act is
intended to grant to community banks certain powers as a matter of right that
larger institutions have accumulated on an ad hoc basis. Nevertheless, the Act
may have the result of increasing the amount of competition that the Bank faces
from larger institutions and other types of companies. In fact, it is not
possible to predict the full effect that the Act will have on the Bank.

From time to time, various bills are introduced in the United States Congress
with respect to the regulation of financial institutions. Certain of these
proposals, if adopted, could significantly change the regulation of banks and
the financial services industry. The Company cannot predict whether any of
these proposals will be adopted or, if adopted, how these proposals would
affect the Company.


                                      12


<PAGE>   14


                      TOURVILLE, SIMPSON & CASKEY, L.L.P.
                          CERTIFIED PUBLIC ACCOUNTANTS
                              POST OFFICE BOX 1769
                         COLUMBIA, SOUTH CAROLINA 29202

                            TELEPHONE (803) 252-3000
                               FAX (803) 252-2226

WILLIAM E. TOURVILLE, CPA                                  MEMBER AICPA SEC AND
HARRIET S. SIMPSON, CPA, CISA, CDP                            PRIVATE COMPANIES
R. JASON CASKEY, CPA                                          PRACTICE SECTIONS

JOHN T. DRAWDY, JR., CPA
TIMOTHY R. ALFORD, CPA
DAVID J. WATKINS II, CPA



                          INDEPENDENT AUDITORS' REPORT



The Board of Directors
Sun Bancshares, Inc.
Murrells Inlet, South Carolina


We have audited the accompanying consolidated balance sheets of Sun Bancshares,
Inc., as of December 31, 2000 and 1999, and the related consolidated statements
of income, changes in shareholders' equity and cash flows for the year ended
December 31, 2000 and for the period August 3, 1999 to December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Sun Bancshares, Inc., as of
December 31, 2000 and 1999, and the results of their operations and cash flows
for the year ended December 31, 2000, and for the period August 3, 1999 to
December 31, 1999, in conformity with generally accepted accounting principles.



Tourville, Simpson & Caskey, L.L.P.
Columbia, South Carolina
March 7, 2001


<PAGE>   15


                             SUN BANCSHARES, INC.

                          CONSOLIDATED BALANCE SHEETS
                          DECEMBER 31, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                            2000                      1999
                                                                        -----------                 ---------
<S>                                                                     <C>                         <C>
ASSETS:
  Cash and cash equivalents:
    Cash and due from banks                                             $   163,515                 $  10,750
    Federal funds sold                                                    6,010,000                        --
                                                                        -----------                 ---------
      Total cash and cash equivalents                                     6,173,515                    10,750
                                                                        -----------                 ---------

  Loans receivable:                                                         905,147
    Less allowance for loan losses                                          (15,000)                       --
                                                                        -----------                 ---------
     Loans, net                                                             890,147                        --

Premises, furniture & equipment, net                                        573,799                    30,740
Accrued interest receivable                                                   4,115                        --
Nonmarketable equity securities                                             195,000                        --
Other assets                                                                191,800                    43,724
                                                                        -----------                 ---------

      Total assets                                                      $ 8,028,376                 $  85,214
                                                                        ===========                 =========

LIABILITIES:
  Deposits:
    Noninterest-bearing transaction accounts                            $   207,226                 $      --
    Interest-bearing transaction accounts                                   170,840                        --
    Savings                                                               1,175,203                        --
    Time deposits $100,000 and over                                         166,967                        --
    Other time deposits                                                     219,107                        --
                                                                        -----------                 ---------
      Total deposits                                                      1,939,343                        --
                                                                        -----------                 ---------

  Borrowings                                                                     --                   250,000
  Accrued interest payable                                                    2,127                        --
  Other liabilities                                                          27,307                        --
                                                                        -----------                 ---------
      Total liabilities                                                   1,968,777                   250,000
                                                                        -----------                 ---------

Commitments and Contingencies (Notes 9, 11, and 15)

SHAREHOLDERS' EQUITY:
  Preferred stock, par value not stated; 2,000,000 shares                        --                        --
   authorized and unissued
  Common stock, par value not stated; 10,000,000 shares                   6,779,216                        10
   authorized; 715,000 and 1 shares issued and outstanding
   at December 31, 2000 and 1999, respectively
  Retained earnings (deficit)                                              (719,617)                 (164,796)
                                                                        -----------                 ---------
      Total shareholders' equity                                          6,059,599                  (164,786)
                                                                        -----------                 ---------

      Total liabilities and shareholders' equity                        $ 8,028,376                 $  85,214
                                                                        ===========                 =========
</TABLE>

              The accompanying notes are an integral part of the
                      consolidated financial statements.


                                      14
<PAGE>   16


                             SUN BANCSHARES, INC.

                       CONSOLIDATED STATEMENTS OF INCOME
    FOR THE YEAR ENDED DECEMBER 31, 2000 AND FOR THE PERIOD AUGUST 3, 1999
                             TO DECEMBER 31, 1999


<TABLE>
<CAPTION>
                                                                             2000                     1999
                                                                          ---------                 ---------
<S>                                                                       <C>                       <C>
INTEREST INCOME:
  Loans, including fees                                                   $   5,748                 $      --
  Federal funds sold                                                         60,255                        --
  Other interest income                                                       1,226                       237
                                                                          ---------                 ---------
     Total                                                                   67,229                       237
                                                                          ---------                 ---------

INTEREST EXPENSE:
  Time deposits $100,000 and over                                               505                        --
  Other deposits                                                              5,877                        --
  Other borrowings                                                           52,863                     1,146
                                                                          ---------                 ---------
     Total                                                                   59,245                     1,146
                                                                          ---------                 ---------

NET INTEREST INCOME (EXPENSE)                                                 7,984                      (909)

Provision for loan losses                                                    15,000                        --
                                                                          ---------                 ---------

NET INTEREST INCOME (LOSS) AFTER PROVISION FOR LOAN LOSSES                   (7,016)                     (909)
                                                                          ---------                 ---------

OTHER OPERATING INCOME:
  Service charges on deposit accounts                                           180                        --
  Other service charges, commissions, and fees                                  144                        --
                                                                          ---------                 ---------
     Total                                                                      324                        --
                                                                          ---------                 ---------

OTHER OPERATING EXPENSES:
  Salaries and employee benefits                                            281,287                    50,423
  Occupancy expense                                                         155,577                        --
  Furniture and equipment expense                                             6,820                        --
  Other operating expenses                                                  254,445                   113,464
                                                                          ---------                 ---------
     Total                                                                  698,129                   163,887
                                                                          ---------                 ---------

INCOME (LOSS) BEFORE INCOME TAXES                                          (704,821)                 (164,796)

Income tax expense (benefit)                                               (150,000)                       --
                                                                          ---------                 ---------

NET INCOME (LOSS)                                                         $(554,821)                $(164,796)
                                                                          =========                 =========

EARNINGS PER SHARE
  Average shares outstanding                                                117,213                        --
  Basic earnings (losses) per share                                       $   (4.73)                $      --
  Diluted earnings (losses) per share                                     $   (4.73)                $      --
</TABLE>

              The accompanying notes are an integral part of the
                      consolidated financial statements.


                                      15
<PAGE>   17

                              SUN BANCSHARES, INC.

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                    FOR THE YEAR ENDED DECEMBER 31, 2000 AND
               FOR THE PERIOD AUGUST 3, 1999 TO DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                            COMMON STOCK
                                       ----------------------     RETAINED EARNINGS
                                        SHARES       AMOUNT           (DEFICIT)         TOTAL
                                       --------    ----------     -----------------   ----------

<S>                                    <C>         <C>            <C>                 <C>
Issuance of common stock                      1    $       10         $       --      $       10

Net loss for the period                                                 (164,796)       (164,796)
                                       --------    ----------         ----------      ----------

BALANCE, DECEMBER 31, 1999                    1            10           (164,796)       (164,786)

Issuance of common stock                715,000     7,150,000                          7,150,000

Cancellation of common stock                 (1)          (10)                               (10)

Cost of common stock issuance                        (370,784)                          (370,784)

Net loss                                                                (554,821)       (554,821)
                                       --------    ----------         ----------      ----------

BALANCE, DECEMBER 31, 2000              715,000    $6,779,216         $ (719,617)     $6,059,599
                                       ========    ==========         ==========      ==========
</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                       16
<PAGE>   18

                              SUN BANCSHARES, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                    FOR THE YEAR ENDED DECEMBER 31, 2000 AND
               FOR THE PERIOD AUGUST 3, 1999 TO DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                                                        2000           1999
                                                                     -----------    ----------

<S>                                                                  <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                                    $  (554,821)   $ (164,796)
Adjustments to reconcile net income (loss) to net cash used
 by operating activities:
Provision for possible loan losses                                        15,000            --
Depreciation                                                              11,614            --
Deferred income tax provision (benefit)                                 (150,000)           --
Increase in interest receivable                                           (4,115)           --
Increase in interest payable                                               2,127            --
Increase in other assets                                                 (32,633)       (9,167)
Increase in other liabilities                                             27,307            --
                                                                     -----------    ----------
  Net cash used by operating activities                                 (685,521)     (173,963)
                                                                     -----------    ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans to customers                                      (905,147)           --
Purchase of premises and equipment                                      (554,673)      (30,740)
Purchase of Federal Reserve stock                                       (195,000)           --
                                                                     -----------    ----------
Net cash used by investing activities                                 (1,654,820)      (30,740)
                                                                     -----------    ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, interest-bearing                      1,553,269            --
 transaction accounts and savings accounts
Net increase in time deposits                                            386,074            --
Net (decrease) increase in borrowings                                   (250,000)      250,000
Cancellation of common stock                                                 (10)
Proceeds from issuance of common stock                                 7,150,000            10
Costs of stock issuance                                                 (336,227)      (34,557)
                                                                     -----------    ----------
 Net cash provided by financing activities                             8,503,106       215,453
                                                                     -----------    ----------

NET INCREASE IN CASH AND CASH EQUIVALENTS                              6,162,765        10,750

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                            10,750            --
                                                                     -----------    ----------

CASH AND CASH EQUIVALENTS, END OF PERIOD                             $ 6,173,515    $   10,750
                                                                     ===========    ==========
</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                       17
<PAGE>   19

                              SUN BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION AND CONSOLIDATION - Sun Bancshares, Inc., (the Company),
was incorporated on August 3, 1999 to organize and own all of the common stock
of SunBank, N.A., (the Bank). SunBank, N.A., opened for business on November 15,
2000. The principal business activity of the Bank is to provide banking services
to domestic markets, principally in Horry County and Georgetown County, South
Carolina. The consolidated financial statements include the accounts of the
Company and the Bank. All significant intercompany balances and transactions
have been eliminated in the consolidation.

PRE-OPENING EXPENSES - The activities associated with organizing the Bank were
conducted by the Company during the developmental stage period (August 3, 1999
to November 14, 2000).

On November 14, 2000, the close of the developmental stage period, the Company's
balance sheet and income statement were as follows:

<TABLE>
<S>                                              <C>
Cash and cash equivalents                        $  5,618,424
Premises and equipment                                397,391
Prepaid expenses                                       54,352
Accrued liabilities                                    (5,213)
Common stock subscription proceeds,
   net of $370,784 expenses of offering            (6,779,216)
                                                 ------------

Net pre-opening expenses                         $   (714,262)
                                                 ============
</TABLE>

The total pre-opening expenses incurred during this period have been charged to
income.

MANAGEMENT'S ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans, including
valuation allowances for impaired loans and the valuation of real estate
acquired in connection with foreclosures or in satisfaction of loans. In
connection with the determination of the allowances for losses on loans and
foreclosed real estate, management obtains independent appraisals for
significant properties. Management must also make estimates in determining the
estimated useful lives and methods for depreciating premises and equipment.

While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory agencies,
as an integral part of their examination process, periodically review the
Company's allowances for losses on loans and foreclosed real estate. Such
agencies may require the Company to recognize additions to the allowances based
on their judgments about information available to them at the time of their
examination. Because of these factors, it is reasonably possible that the
allowances for losses on loans and foreclosed real estate may change materially
in the near term.

SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK - Most of the Company's
activities are with customers located within Horry County and Georgetown County
in South Carolina. The types of lending that the Company engages in are
discussed in Note 3. The Company does not have any significant concentrations to
any one industry or customer.


                                       18
<PAGE>   20

                              SUN BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

LOANS - Loans are stated at their unpaid principal balance. Interest income is
computed using the simple interest method and is recorded in the period earned.

When serious doubt exists as to the collectibility of a loan or when a loan
becomes 90 days past due as to principal or interest, interest income is
generally discontinued unless the estimated net realizable value of collateral
exceeds the principal balance and accrued interest. When interest accruals are
discontinued, income earned but not collected is reversed.

Impaired loans are measured based on the present value of discounted expected
cash flows. When it is determined that a loan is impaired, a direct charge to
bad debt expense is made for the difference between the net present value of
expected future cash flows based on the contractual rate and discount rate and
the Company's recorded investment in the related loan. The corresponding entry
is to a related valuation account. Interest is discontinued on impaired loans
when management determines that a borrower may be unable to meet payments as
they become due.

ALLOWANCE FOR LOAN LOSSES - An allowance for possible loan losses is maintained
at a level deemed appropriate by management to provide adequately for known and
inherent risks in the loan portfolio. The allowance is based upon a continuing
review of past loan loss experience, current and future economic conditions
which may affect the borrowers' ability to pay, and the underlying collateral
value of the loans. Loans which are deemed to be uncollectible are charged off
and deducted from the allowance. The provision for possible loan losses and
recoveries of loans previously charged off are added to the allowance.

PREMISES AND EQUIPMENT - Premises and equipment are stated at cost, less
accumulated depreciation. The provision for depreciation is computed by the
straight-line method, based on the estimated useful lives for temporary
buildings of 1 year and furniture and equipment of 5 to 10 years. Leasehold
improvements are being amortized over 20 years. The cost of assets sold or
otherwise disposed of, and the related allowance for depreciation is eliminated
from the accounts and the resulting gains or losses are reflected in the income
statement when incurred. Maintenance and repairs are charged to current expense.
The costs of major renewals and improvements are capitalized.

NONMARKETABLE EQUITY SECURITIES - Nonmarketable equity securities include the
cost of the Company's investment in the stock of the Federal Reserve Bank. The
stock has no quoted market value and no ready market exists. Investment in
Federal Reserve Bank stock is required by law of every national bank. At
December 31, 2000, the Company's investment in Federal Reserve Bank stock was
$195,000.

INCOME TAXES - Income taxes are the sum of amounts currently payable to taxing
authorities and the net changes in income taxes payable or refundable in future
years. Income taxes deferred to future years are determined utilizing a
liability approach. This method gives consideration to the future tax
consequences associated with differences between financial accounting and tax
bases of certain assets and liabilities which are principally the allowance for
loan losses and depreciable premises and equipment.

PER SHARE AMOUNTS - Income or loss per share is computed by dividing earnings by
the weighted average number of shares outstanding during the year. See Note 14.

STOCK-BASED COMPENSATION - Statement of Financial Accounting Standards (SFAS
123), "Accounting for Stock-Based Compensation," allows a company to either
adopt the fair value method or continue using the intrinsic valuation method
presented under Accounting Principles Board ("APB") Opinion 25 to account for
stock-based compensation. The fair value method recommended in SFAS 123 requires
compensation cost to be measured at the grant date based on the value of the
award and to be recognized over the service period. The intrinsic value method
measures compensation cost based on the excess, if any, of the quoted market
price of the stock at the grant date over the amount an employee must pay to
acquire the stock. The Company has elected to use APB Opinion 25 to account for
stock options granted and has disclosed in the footnotes pro forma net income
and earnings per share information as if the fair value method had been used.
See Note 13.


                                       19
<PAGE>   21

                              SUN BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

STATEMENTS OF CASH FLOWS - For purposes of reporting cash flows in the financial
statements, the Company considers certain highly liquid debt instruments
purchased with a maturity of three months or less to be cash equivalents. Cash
equivalents include amounts due from banks and federal funds sold. Generally,
federal funds are sold for one-day periods.

During 2000, interest paid on deposits and other borrowings totaled $57,118.
During the period August 3, 1999 to December 31, 1999, interest paid on other
borrowings totaled $1,146.

There were no income tax payments in 2000 or for the period August 3, 1999 to
December 31, 1999.

OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS - In the ordinary course of business,
the Company enters into off-balance-sheet financial instruments consisting of
commitments to extend credit and letters of credit. These financial instruments
are recorded in the financial statements when they become payable by the
customer. See Note 15.

RECENT ACCOUNTING PRONOUNCEMENTS - In June 1998, the Financial Accounting
Standards Board (FASB) issued Statement (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities, effective for fiscal years
beginning after June 15, 2000. This Statement establishes accounting and
reporting standards for derivative instruments and hedging activities, including
certain derivative instruments embedded in other contracts, and requires that an
entity recognize all derivatives as assets or liabilities in the balance sheet
and measure them at fair value. The accounting for changes in the fair value of
a derivative depends on how the derivative is used and how the derivative is
designated. The Company adopted SFAS No. 133 on July 1, 2000. The adoption of
SFAS No. 133 did not have a material impact on the consolidated financial
statements.

RECLASSIFICATIONS - Certain captions and amounts in the 1999 financial
statements were reclassified to conform with the 2000 presentation.

NOTE 2 - CASH AND DUE FROM BANKS

The Bank is required to maintain cash balances with the Bankers Bank sufficient
to cover all cash letter transactions. At December 31, 2000, the requirement was
met by the cash balance in the account and by the line available for federal
funds.

NOTE 3 - LOANS

Major classifications of loans receivable at December 31, 2000 are summarized as
follows:

<TABLE>
<CAPTION>
                                    2000
                                  ---------

<S>                               <C>
Real estate - mortgage            $ 210,910
Commercial and industrial           397,833
Consumer and other                  296,404
                                  ---------
    Total gross loans             $ 905,147
                                  =========
</TABLE>

Transactions in the allowance for loan losses for the year ended December 31,
2000 are summarized below:

<TABLE>
<CAPTION>
                                                   2000
                                                 --------

<S>                                              <C>
Balance, beginning of year                       $     --
Provision charged to operations                    15,000
Recoveries on loans previously charged-off             --
Loans charged-off                                      --
                                                 --------
Balance, end of year                             $ 15,000
                                                 ========
</TABLE>

There were no loans in nonaccrual status and no loans past due ninety days or
more and still accruing interest at December 31, 2000.


                                       20
<PAGE>   22

                              SUN BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - PREMISES AND EQUIPMENT

Premises and equipment consisted of the following at December 31, 2000 and 1999:

<TABLE>
<CAPTION>
                                         2000        1999
                                       --------    --------

<S>                                    <C>         <C>
Temporary buildings                    $133,143    $  9,000
Furniture and equipment                 286,444          --
Construction in progress                165,826      21,740
                                       --------    --------
Total                                   585,413      30,740
Less, accumulated depreciation           11,614          --
                                       --------    --------

Premises and equipment, net            $573,799    $ 30,740
                                       ========    ========
</TABLE>

The Company has committed to spend approximately $620,000 to build a branch in
Georgetown, South Carolina.

NOTE 5 - DEPOSITS

The aggregate amount of time deposits in denominations of $100,000 or more at
December 31, 2000 was $166,967, all of which mature during 2001.

As of December 31, 2000, overdrafts in the amount of $3,818 were classified as
loans.

NOTE 6 - RESTRICTIONS ON SUBSIDIARY DIVIDENDS, LOANS, OR ADVANCES

The ability of Sun Bancshares, Inc., to pay cash dividends is dependent upon
receiving cash in the form of dividends from the Bank. However, certain
restrictions exist regarding the ability of the subsidiary to transfer funds to
the Company in the form of cash dividends, loans, or advances. The approval of
the Office of the Comptroller of the Currency is required to pay dividends in
excess of the Bank's net profits (as defined) for the current year plus retained
net profits (as defined) for the preceding two years, less any required
transfers to surplus. The undivided profits of the Bank at December 31, 2000
were negative and not available to pay cash dividends to the Company. At
December 31, 2000, total shareholders' equity of the Bank was $5,950,383.

NOTE 7 - OTHER OPERATING EXPENSES

Other operating expenses for the year ended December 31, 2000 and for the period
August 3, 1999 to December 31, 1999 are summarized below:

<TABLE>
<CAPTION>
                                                   2000        1999
                                                 --------    --------

<S>                                              <C>         <C>
Professional fees                                $ 91,236    $ 80,470
Office supplies, forms, and stationery             36,546       4,821
Data processing                                    46,471          --
Other                                              80,192      28,173
                                                 --------    --------

Total                                            $254,445    $113,464
                                                 ========    ========
</TABLE>


                                       21
<PAGE>   23

                              SUN BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - INCOME TAXES

Income tax expense (benefit) for the year ended December 31, 2000 and for the
period August 3, 1999 to December 31, 1999 is summarized as follows:

<TABLE>
<CAPTION>
                                               2000       1999
                                            ----------    ----

<S>                                         <C>           <C>
Change in deferred income taxes:
 Federal                                    $ (130,769)   $ --
 State                                         (19,231)     --
                                            ----------    ----

Income tax expense (benefit)                $ (150,000)   $ --
                                            ==========    ====
</TABLE>

The gross amounts of deferred tax assets and deferred tax liabilities as of
December 31, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                                    2000          1999
                                                 ----------    ----------
<S>                                              <C>           <C>
Deferred tax assets:
 Allowance for loan losses                       $    5,851    $       --
 Net operating loss carryforward                     60,264        60,925
 Organization costs and preopening costs            276,543            --
 Depreciation                                           554            --
 Contribution carryforward                              472            --
                                                 ----------    ----------
   Total net deferred tax assets                    343,684        60,925
Less, valuation allowance                          (132,759)      (60,925)
                                                 ----------    ----------
   Net deferred tax asset recognized             $  150,000    $       --
                                                 ==========    ==========
</TABLE>

Deferred tax assets represent the future tax benefit of deductible differences
and, if its more likely than not that a tax asset will not be realized, a
valuation allowance is required to reduce the recorded deferred tax assets to
net realizable value. As of December 31, 2000, management has determined that it
is more likely than not that $150,000 of the total deferred tax asset will be
realized, and accordingly, has established a valuation allowance of $193,684.

The Company has a net operating loss for income tax purposes of $150,681 as of
December 31, 2000. This net operating loss expires in the year 2020.

A reconciliation between the income tax expense (benefit) and the amount
computed by applying the federal statutory rate of 34% to income before income
taxes for the year ended December 31, 2000 and for the period August 3, 1999
(inception) to December 31, 1999 follows:

<TABLE>
<CAPTION>
                                                                   2000          1999
                                                                ----------    ----------
<S>                                                             <C>           <C>
Tax expense (benefit) at statutory rate                         $ (239,639)   $  (56,031)
State income tax, net of federal income tax benefit                (12,692)       (4,894)
Change in the deferred tax asset valuation allowance               132,759        60,925
Other                                                              (30,428)           --
                                                                ----------    ----------

   Income tax expense (benefit)                                 $ (150,000)   $       --
                                                                ==========    ==========
</TABLE>


                                       22
<PAGE>   24

                              SUN BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - LEASES

As of December 31, 2000, the Company had entered into the following three
leases:

LEASE OF MAIN OFFICE SITE - On April 28, 2000, the Company signed an agreement
with Riverwood Enterprises, L.L.C., a South Carolina limited liability company,
for the lease of the site of the permanent main office building. One of the
Company's directors has a 50% ownership interest in Riverwood Enterprises. The
amount of the annual rent for the first year of the lease is $90,000, with
annual adjustments based on the consumer price index thereafter. The initial
term of the lease is 30 years with renewal options for a total of 20 additional
years. The lease calls for the Company to pay taxes, insurance and repairs on
the leased property. Rental expense for this property was $63,750 for the year
ended December 31, 2000.

LEASE OF SITE FOR TEMPORARY MAIN OFFICE - On November 1, 1999, the Company
signed an agreement for the lease of a temporary main office site with Wachesaw
Development, L.L.C., which is 100% owned by a director of the Company. The lease
is on a month-to-month basis and is expected to end in the fourth quarter of
2001. The monthly rental rate is $2,000. The amount charged to earnings for
rental expense of this property was $6,209 for the year ended December 31, 2000.

LEASE OF BRANCH OFFICE SITE - The Company entered into a lease agreement on
November 12, 1999 for the lease of its branch office site, located in
Georgetown, South Carolina. The amount of the annual rent for the first three
years of the lease is $55,000 per year; beginning with the fourth year and every
three years thereafter, the annual rent will be adjusted by the consumer price
index. The initial term of the lease will be 30 years with renewal options for a
total of 20 additional years. Rental expense for this property was $53,508 for
the year ended December 31, 2000.

The above three leases are being accounted for as operating leases. Future
minimum lease payments over the next five years under noncancellable operating
lease agreements are as follows:

<TABLE>
<CAPTION>
                                     2000
                                   ---------

         <S>                       <C>
         2001                      $ 169,000
         2002                        145,000
         2003                        145,000
         2004                        145,000
         2005                        145,000
                                   ---------
                                   $ 749,000
                                   =========
</TABLE>

NOTE 10 - RELATED PARTY TRANSACTIONS

Certain parties (principally certain directors and executive officers of the
Company, their immediate families and business interests) were loan customers of
and had other transactions in the normal course of business with the Company.
Related party loans are made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with unrelated persons and do not involve more than the normal risk
of collectibility. As of December 31, 2000, the Company had related party loans
totaling $378,853, all of which were made during 2000. There were no repayments
in 2000.

Lease payments for the main office site in the amount of $63,750 and for the
temporary main office in the amount of $6,209 were made to directors for the
year ended December 31, 2000.

NOTE 11 - COMMITMENTS AND CONTINGENCIES

In the ordinary course of business, the Company may, from time to time, become a
party to legal claims and disputes. At December 31, 2000, management and legal
counsel are not aware of any pending or threatened litigation or unasserted
claims or assessments that could result in losses, if any, that would be
material to the financial statements.


                                       23
<PAGE>   25

                              SUN BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 - STOCK WARRANTS

In accordance with the provision of the Company's initial public stock offering,
the directors received stock warrants which give them the right to purchase
291,350 shares of the Company's common stock at a price of $10.00 per share. The
warrants vest equally over a three-year period beginning November 1, 2001 and
expire on November 1, 2010 or ninety days after the warrant holder ceases to
serve as a member of the Board of Directors.

As of December 31, 2000, none of the warrants had been exercised or cancelled,
nor were any of them exercisable.

NOTE 13 - STOCK COMPENSATION PLAN

Effective July 17, 2000, the Company adopted an Incentive Stock Option Plan (the
Plan). The Plan provides for the granting of 100,000 stock options to purchase
up to 100,000 shares, adjusted for stock dividends, of the Company's common
stock, to officers, employees, directors, and organizers of the Company. The
Company may grant awards for a term of up to ten years from the effective date
of grant. The per-share exercise price will be determined by the Board of
Directors, except that the exercise price of an incentive stock option may not
be less than fair market value of the common stock on the grant date, or less
than 110% of the fair value if the grantee owns more than 10% of the outstanding
common stock of the Company or its affiliates. The per-share exercise price of
non-incentive stock options will not be less than the fair value of a share on
the date of grant. Issued options will vest ratably over five years beginning
one year from the date of grant. At December 31, 2000, the Company had 49,250
options available for grant.

As discussed in Note 1, the Company applies APB Opinion 25 in accounting for its
stock compensation plan. Accordingly, no compensation cost has been recognized
for any options issued by the Company. Had compensation cost for the Company's
stock option plans been determined based on the fair value at the grant dates
for awards under those plans consistent with the method of FASB Statement 123,
the Company's net loss and net loss per share would have been increased to the
pro forma amounts indicated below:

<TABLE>
<S>                                         <C>
Net income (loss):
 As reported                                $ (554,821)
 Pro forma                                    (556,513)

Basic earnings (losses) per share:
 As reported                                $    (4.73)
 Pro forma                                       (4.75)

Diluted earnings (losses) per share:
 As reported                                $    (4.73)
 Pro forma                                       (4.75)
</TABLE>

In calculating the pro forma disclosures, the fair value of options granted is
estimated as of the date granted using the Black-Scholes option pricing model
with the following weighted-average assumptions used for grants in 2000:
dividend yield of 0 percent for the year; expected volatility of 0 percent;
risk-free interest rate of 5.74 percent; and expected life of 10 years.

The weighted-average fair value of options, calculated using the Black-Scholes
option-pricing model, granted during 2000 is $4.32.


                                       24
<PAGE>   26

                              SUN BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - STOCK COMPENSATION PLAN (continued)

A summary of the status of the Company's stock option plan as of December 31,
2000, and changes during the period is presented below:

<TABLE>
<CAPTION>
                                                     WEIGHTED
                                                     AVERAGE
                                                     EXERCISE
                                            SHARES    PRICE
                                            ------   --------

<S>                                         <C>      <C>
Outstanding at beginning of period              --    $   --
Granted                                     50,750     10.00
Exercised                                       --        --
Cancelled                                       --        --
                                            ------

Outstanding at end of year                  50,750    $10.00
                                            ======
</TABLE>

There were no options exercisable at December 31, 2000.

NOTE 14 - EARNINGS PER SHARE

Net income (loss) per share - basic is computed by dividing net income by the
weighted average number of common shares outstanding. Net income (loss) per
share - diluted is computed by dividing net income by the weighted average
number of common shares outstanding and dilutive common share equivalents using
the treasury stock method. Dilutive common share equivalents include common
shares issuable upon exercise of outstanding stock options. There were no
dilutive common share equivalents outstanding during 2000; therefore, basic
earnings per share and diluted earnings per share were the same for 2000.

<TABLE>
<CAPTION>
                                                              2000
                                                           ----------

<S>                                                        <C>
Net income (loss) per share - basic computation:

Net income (loss) available to common shareholders         $ (554,821)
                                                           ==========

Average common shares outstanding - basic                     117,213
                                                           ==========

Net income (loss) per share - basic                        $    (4.73)
                                                           ==========
</TABLE>

NOTE 15 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments consist of commitments to extend credit and standby
letters of credit. Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. A commitment involves, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the balance sheets. The Company's exposure to credit loss in the
event of non-performance by the other party to the instrument is represented by
the contractual notional amount of the instrument. Since certain commitments are
expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company uses the same credit
policies in making commitments to extend credit as it does for on-balance-sheet
instruments. Letters of credit are conditional commitments issued to guarantee a
customer's performance to a third party and have essentially the same credit
risk as other lending facilities.


                                       25
<PAGE>   27

                              SUN BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (continued)

Collateral held for commitments to extend credit and standby letters of credit
varies but may include accounts receivable, inventory, property, plant,
equipment, and income-producing commercial properties.

The following table summarizes the Company's off-balance-sheet financial
instruments whose contract amounts represent credit risk as of December 31,
2000.

<TABLE>
<CAPTION>
                                               2000
                                             ---------
<S>                                          <C>
Commitments to extend credit                 $ 449,117
Standby letters of credit                           --
</TABLE>

Management is not aware of any significant concentrations of loans to classes of
borrowers or industries that would be affected similarly by economic conditions.
Although the Bank's loan portfolio is diversified, a substantial portion of its
borrowers' ability to honor the terms of their loans is dependent on the
economic conditions in Horry County, Georgetown County and surrounding areas.

NOTE 16 - REGULATORY MATTERS

The Company (on a consolidated basis) and the Bank are subject to various
regulatory capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Company's and Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and the Bank must meet specific capital
guidelines that involve quantitative measures of their assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors. Prompt corrective action provisions are not applicable to bank
holding companies.

Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the following table) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as
defined) to total assets (as defined). Management believes, as of December 31,
2000, that the Company and the Bank met all capital adequacy requirements to
which they are subject.

As of December 31, 2000, the most recent notification from the office of the
Comptroller of the Currency categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, an institution must maintain minimum total risk-based, Tier 1
risk-based and Tier 1 leverage ratios as set forth in the following tables.
There are no conditions or events since the notification that management
believes have changed the Bank's category.

The following table summarizes the capital amounts and ratios of the Bank and
the regulatory minimum requirements at December 31, 2000.

<TABLE>
<CAPTION>
                                                                                                  TO BE WELL-
                                                                                               CAPITALIZED UNDER
                                                                            FOR CAPITAL        PROMPT CORRECTIVE
                                                        ACTUAL           ADEQUACY PURPOSES     ACTION PROVISIONS
                                                 --------------------    ------------------    ------------------
                                                   AMOUNT      RATIO      AMOUNT      RATIO     AMOUNT      RATIO
                                                 ----------    ------    --------     -----    --------     -----

<S>                                              <C>           <C>       <C>          <C>      <C>          <C>
December 31, 2000
 Total capital (to risk-weighted assets)         $5,965,383    201.75%   $236,546      8.00%   $295,682     10.00%
 Tier 1 capital (to risk-weighted assets)         5,950,383    201.24%    118,273      4.00%    177,409      6.00%
 Tier 1 capital (to average assets)               5,950,383     79.63%    298,906      4.00%    373,632      5.00%
</TABLE>


                                       26
<PAGE>   28

                              SUN BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16 - REGULATORY MATTERS (continued)

The Federal Reserve Board has similar requirements for bank holding companies.
The Company is currently not subject to these requirements because the Federal
Reserve guidelines contain an exemption for bank holding companies less than
$150,000,000 in consolidated assets.

NOTE 17 - UNUSED LINES OF CREDIT

As of December 31, 2000, the Company had unused lines of credit to purchase
federal funds from unrelated banks totaling $1,500,000. These lines of credit
are available on a one to fourteen day basis for general corporate purposes.

NOTE 18 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial instrument is the amount at which the asset or
obligation could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. Fair value estimates are made at a
specific point in time based on relevant market information and information
about the financial instruments. Because no market value exists for a
significant portion of the financial instruments, fair value estimates are based
on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors.

The following methods and assumptions were used to estimate the fair value of
significant financial instruments:

Cash and Due from Banks - The carrying amount is a reasonable estimate of fair
value.

Federal Funds Sold - Federal funds sold are for a term of one day and the
carrying amount approximates the fair value.

Nonmarketable Equity Securities - The carrying amount of nonmarketable equity
securities is a reasonable estimate of fair value since no ready market exists
for these securities.

Loans - For certain categories of loans, such as variable rate loans which are
repriced frequently and have no significant change in credit risk, fair values
are based on the carrying amounts. The fair value of other types of loans is
estimated by discounting the future cash flows using the current rates at which
similar loans would be made to the borrowers with similar credit ratings and for
the same remaining maturities. Rates at December 31, 2000 approximate those in
effect during the Company's operations from November 15, 2000 through December
31, 2000.

Deposits - The fair value of demand deposits, savings, and money market accounts
is the amount payable on demand at the reporting date. The fair values of
certificates of deposit are estimated using a discounted cash flow calculation
that applies current interest rates to a schedule of aggregated expected
maturities. Rates at December 31, 2000 approximate those in effect during the
Company's operations from November 15, 2000 through December 31, 2000.

Accrued Interest Receivable and Payable - The carrying value of these
instruments is a reasonable estimate of fair value.

Off-balance-sheet Financial Instruments - The carrying amount for loan
commitments which are off-balance-sheet financial instruments, approximates the
fair value since the obligations are typically based on current market rates.


                                       27
<PAGE>   29

                              SUN BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18 - FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

The carrying values and estimated fair values of the Company's financial
instruments as of December 31, 2000 were as follows:

<TABLE>
<CAPTION>
                                                                       2000
                                                             CARRYING     ESTIMATED FAIR
                                                              AMOUNT           VALUE
                                                           ------------   --------------
<S>                                                        <C>            <C>
FINANCIAL ASSETS:
 Cash and due from banks                                   $    163,515    $    163,515
 Federal funds sold                                           6,010,000       6,010,000
 Nonmarketable equity securities                                195,000         195,000
 Loans                                                          905,147         905,147
 Allowance for loan losses                                      (15,000)        (15,000)
 Accrued interest receivable                                      4,115           4,115

FINANCIAL LIABILITIES:
 Demand deposit, interest-bearing transaction,             $  1,553,269    $  1,553,269
    and savings accounts
 Certificates of deposit and other time deposits                386,074         386,074
 Accrued interest payable                                         2,127           2,127

<CAPTION>
                                                 NOTIONAL    ESTIMATED FAIR
                                                  AMOUNT         VALUE
                                                 --------       --------
<S>                                              <C>         <C>
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS:
 Commitments to extend credit                    $449,117       $449,117
 Standby letters of credit                             --             --
</TABLE>

NOTE 19 - EMPLOYMENT CONTRACT

Sun Bancshares, Inc., has a three-year employment contract with its President.
Subject to certain conditions, at the end of the initial three-year term of the
contract, the contract shall be extended for an additional year so that the
remaining term of the contract will be one year.

In accordance with the contract, the President was paid a $10,000 cash bonus on
the date the Bank opened for business and shall be eligible to receive an annual
cash bonus not to exceed 5% of the Bank's pretax income if the Bank achieves
certain performance levels established by the Board of Directors.


                                       28
<PAGE>   30

                              SUN BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 - SUN BANCSHARES, INC. (PARENT COMPANY ONLY)

Presented below are the condensed financial statements of Sun Bancshares, Inc.
(Parent Company Only).

                                 BALANCE SHEETS
                           DECEMBER 31, 2000 AND 1999

<TABLE>
<CAPTION>
                                                         2000          1999
                                                      ----------    ----------
<S>                                                   <C>           <C>
ASSETS
 Cash                                                 $  109,216    $   10,750
 Investment in banking subsidiary                      5,950,383            --
 Other assets                                                 --        74,464
                                                      ----------    ----------

   Total assets                                       $6,059,599    $   85,214
                                                      ==========    ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
 Borrowings                                           $       --    $  250,000

 Shareholders' equity (deficit)                        6,059,599      (164,786)
                                                      ----------    ----------

   Total liabilities and shareholders' equity         $6,059,599    $   85,214
                                                      ==========    ==========
</TABLE>

                              STATEMENTS OF INCOME
                    FOR THE YEAR ENDED DECEMBER 31, 2000 AND
               FOR THE PERIOD AUGUST 3, 1999 TO DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                                                            2000              1999
                                                                         ----------        ----------

<S>                                                                      <C>               <C>
Income - Interest                                                        $       --        $      237

Expenses - Organizational                                                    50,000           165,033
                                                                         ----------        ----------

Income (loss) before income taxes and equity in                             (50,000)         (164,796)
 undistributed losses of banking subsidiary

Income tax expense (benefit)                                                     --                --

Equity in undistributed earnings (losses) of banking subsidiary            (504,821)               --
                                                                         ----------        ----------

NET INCOME (LOSS)                                                        $ (554,821)       $ (164,796)
                                                                         ==========        ==========
</TABLE>


                                       29
<PAGE>   31

                              SUN BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 - SUN BANCSHARES, INC. (PARENT COMPANY ONLY) (continued)

                            STATEMENTS OF CASH FLOWS
                    FOR THE YEAR ENDED DECEMBER 31, 2000 AND
               FOR THE PERIOD AUGUST 3, 1999 TO DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                                                                 2000              1999
                                                                              ----------        ----------

<S>                                                                           <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
 Net income (loss)                                                            $ (554,821)       $ (164,796)
 Adjustments to reconcile net income (loss) to net cash provided by
  operating activities:
 Equity in loss of banking subsidiary                                            504,821                --
 Pre-opening expenses transferred to the Bank                                    164,796
 Decrease (increase) in other assets                                              39,907            (9,167)
                                                                              ----------        ----------
 Net cash provided (used) by operating activities                                154,703          (173,963)
                                                                              ----------        ----------

CASH FLOWS FROM INVESTING ACTIVITIES
 Cancellation of common stock                                                        (10)               --
 Purchase of Bank's common stock                                              (6,620,000)               --
 Purchase of premises and equipment                                                   --           (30,740)
                                                                              ----------        ----------
 Net cash used by investing activities                                        (6,620,010)          (30,740)
                                                                              ----------        ----------

CASH FLOWS FROM FINANCING ACTIVITIES
 Net (decrease) increase from borrowings                                        (250,000)          250,000
 Issuance of common stock                                                      7,150,000                10
 Costs of stock issuance                                                        (336,227)          (34,557)
                                                                              ----------        ----------
 Net cash provided by financing activities                                     6,563,773           215,453
                                                                              ----------        ----------

INCREASE IN CASH                                                                  98,466            10,750

CASH, BEGINNING OF PERIOD                                                         10,750                --
                                                                              ----------        ----------

CASH, ENDING OF PERIOD                                                        $  109,216        $   10,750
                                                                              ==========        ==========
</TABLE>


                                       30
<PAGE>   32

                              SUN BANCSHARES, INC.

                               BOARD OF DIRECTORS

<TABLE>
<S>                                             <C>
Thomas Bouchette........................................................President, Sun Bancshares, Inc. and
                                                       President and Chief Executive Officer, SunBank, N.A.

Dalton B. Floyd, Jr.........................................................Attorney, The Floyd Law Firm PC
                                                              Chief Executive Officer, Sun Bancshares, Inc.

Edsel J. ("Coupe") DeVille...............................................Director of Community Development,
                                                                                  Commercial Landtec, Corp.

John S. Divine, III.........................................................Co-owner, Divine Holdings, LLC,
                                                                         Co-Owner, Divine Restaurants, Inc.

Jeanne Louise Fourrier-Eggart..................................................................Periodontist

David E. Grabeman...................................................................................Dentist

Richard Edwin Heath.............................Certified Public Accountant and Certified Valuation Analyst

Paul John Hletko...............................................................................Pediatrician

Judy B. Long..............................................Sole/part owner of Four Seasons, Screen Printing,
                                                        Sports Spectacular, Inc., Super Sports Spectacular,
                                                                                Carol, Inc., and Fins, Inc.

Georgie B. Martin..............................................................Owner, Garden City Pavilion;
                                                               President and Owner, Independent Coin, Inc.;
                                                          President and Co-Owner, Martin Coin Machine, Inc.

Thomas O. Morris, Jr...........................................Pharmacist, Owner, Hemingway Pharmacy, Inc.;
                                                                                   Owner, Home Medical Care

Joel A. Pellicci....................................................President and Owner, Jo-Lin Enterprises

Donald E. Perry.............................................President and Co-Owner, Lakewood Camping Resort

Chandler C. Prosser....................................President and Owner of Prosser Realty Company, Inc.;
                                                                      Co-Owner, Grove Development, LLC; and
                                                                       Managing Partner, Wachesaw Golf, LLC

Larry N. Prosser.....................................................President and Owner, Glenn's Bay, Inc.
</TABLE>

                                 SENIOR OFFICERS

<TABLE>
  <S>                                         <C>
             Thomas Bouchette                          Randy L. Carmon
  President and Chief Executive Officer            Chief Financial Officer
                                              and Principal Accounting Officer

             John L. Truelove                         Lynn Wood Wilson
          Senior Lending Officer                       Vice President
                                                       Georgetown Area
                                                      Executive Officer
</TABLE>


                                       31
<PAGE>   33

                                 CORPORATE DATA

                                 ANNUAL MEETING:

The Annual Meeting of Shareholders of Sun Bancshares, Inc., will be held at
Belin Memorial United Methodist Church, Murrells Inlet, South Carolina on Monday
May 14, 2001, at 4:30 p.m.

<TABLE>
<CAPTION>
CORPORATE OFFICE:                          GENERAL COUNSEL:
----------------                           ---------------

<S>                                        <C>
4367 Riverwood Drive                       Powell, Goldstein Frazer and Murphy, LLP
Post Office Box 1359                       16th Floor
Murrells Inlet, South Carolina 29576       191 Peachtree Street, N.E.
Phone (843) 357-7007                       Atlanta, Georgia 30303
Fax (843) 357-7008

<CAPTION>
STOCK TRANSFER DEPARTMENT:                 INDEPENDENT AUDITORS:
--------------------------                 ---------------------

<S>                                        <C>
Sun Trust Bank                             Tourville, Simpson & Caskey, L.L.P.
Mail Code 258                              500 Taylor Street, Suite 101
Post Office Box 4625                       Post Office Box 1769
Atlanta, Georgia 30302                     Columbia, S.C. 29202
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STOCK INFORMATION:

The Common Stock of Sun Bancshares, Inc., is not listed on any exchange.
However, the stock is quoted on the NASDAQ OTC Bulletin Board under the symbol
"SNBA." There were approximately 450 shareholders of record on December 31,
2000.


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