SUN BANCSHARES, INC.

                               2001 Annual Report




<PAGE>
<TABLE>
<CAPTION>
                                    SUN BANCSHARES, INC.




                                     TABLE OF CONTENTS

                                                                                     PAGE
                                                                                     -----
<S>                                                                                  <C>
Shareholders' Letter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Management's Discussion and Analysis. . . . . . . . . . . . . . . . . . . . . . . . . 4-16
Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income . . 20
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . 21
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . .  22-36
Directors and Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Corporate Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>


<PAGE>
                              SUN BANCSHARES, INC.


Dear  Shareholder:

We  will always remember our first full year of operations since 2001 was a very
eventful  year  not  only for us, but for our country and community as well.  We
had  the  terrorist attacks in New York and Washington, the decline in the stock
market, the decline in interest rates to the lowest level they have been in over
twenty-five  years  and  the  Enron collapse, which is the largest bankruptcy in
United  States  history.  These  events  made it extremely challenging for a new
bank;  however, we are proud of the fact that we grew assets by $17,320,666 to a
total of $25,349,042 at December 31, 2001.  In addition, at December 31, 2001 we
had $16,238,315 in loans and $19,200,114 in deposits.  Even with the significant
increase  in  assets,  we  were  well  capitalized  at  year-end.

During  2001  we  completed the construction of our Georgetown branch, which was
opened  on July 9, 2001.  Although we have been operating our main office out of
a  temporary  building since we opened on November 15, 2000, we are very pleased
with the level of support we have received from our community.  The construction
of  our  new  two-story,  main office facility will begin during April 2002.  We
anticipate  completion of the building in the fourth quarter of 2002, which will
allow  us  to  occupy  it  during January 2003.  The new building should help us
generate  more  walk  in  traffic,  especially  for  people  relocating  to  our
community.  While  bricks and mortar generate interest because of visibility, we
realize  it  takes superior customer service to build relationships.  Regardless
of  the  buildings  we  occupy  or  how big we get, providing "old time personal
service"  will  always  be  the  building  foundation  for  SunBank.

As  large  regional  banks  continue  to  merge  and become even larger, we will
capitalize  on  opportunities  to  build SunBank with a "one customer at a time"
approach.  We  believe  we have the right people in the right place at the right
time  that  will  enable  us  compete  favorably with these larger institutions.
Additionally,  we  believe  our  offices are strategically located in our market
area.  The  new  Waccamaw  community  hospital  is in the process of being built
directly across the street from our permanent office site and construction is in
the  early stages on a new 40,000 square foot medical office where our temporary
office  is  now.  There are several other projects in early stages that will add
to  the  explosive  growth  in the South Strand market.  Our Georgetown location
affords  us  the  opportunity to be the most visible bank in town because of our
proximity  to  the  Hospital,  the  post  office,  and  Wal-Mart.

Our  employees,  board members, and ourselves never forget that our shareholders
make everything we do possible.  Finally, we want take this opportunity to thank
you for your support and reaffirm our pledge to use all of our energy and talent
to  increase  shareholders'  value.


Sincerely,

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

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


                                        2
<PAGE>
                              SUN BANCSHARES, INC.

                            SELECTED FINANCIAL DATA

The  following selected financial data for the years ended December 31, 2001 and
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 years ended December 31, 2001 and 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>
                                                                2001       2000     1999
                                                              ---------  --------  ------
<S>                                                           <C>        <C>       <C>
(Dollars in thousands, except per share)
INCOME STATEMENT DATA:
 Interest income                                              $ 1,072    $    67   $   -
 Interest expense                                                 412         59       1
                                                              ---------  --------  ------
 Net interest income (expense)                                    660          8      (1)
 Provision for loan losses                                        150         15       -
                                                              ---------  --------  ------
 Net interest income (loss) after provision for loan losses       510         (7)     (1)
 Noninterest income                                                77          -       -
 Noninterest expense                                            1,601        698     164
                                                              ---------  --------  ------
 Loss before income taxes                                      (1,014)      (705)   (165)
 Income tax benefit                                              (383)      (150)      -
                                                              ---------  --------  ------

  Net loss                                                    $  (631)   $  (555)  $(165)
                                                              =========  ========  ======

BALANCE SHEET DATA:
 Assets                                                       $25,349    $ 8,028   $  85
 Earning assets                                                22,121      7,110       -
 Securities (1)                                                 4,384
 Loans (2)                                                     16,238        905       -
 Allowance for loan losses                                       (165)       (15)      -
 Deposits                                                      19,200      1,939       -
 Securities sold under agreement to repurchase                    500          -       -
 Other borrowings                                                   -          -     250
 Shareholdersequity                                             5,442      6,060    (165)

PER-SHARE DATA:
 Earnings (losses) per-share                                  $ (0.88)   $(4.73)  $   -
 Book value (period end)                                         7.61      8.47       -
 Tangible book value (period end)                                7.61      8.47       -

PERFORMANCE RATIOS (3):
 Return on average assets                                       (3.54)%       -       -
 Return on average equity                                      (11.23)        -       -
 Net interest margin (4)                                         4.27         -       -
 Efficiency (5)                                                217.21         -       -

CAPITAL AND LIQUIDITY RATIOS:
 Leverage (4.00% required minimum)                              22.29%    81.09%      -%
 Risk-based capital
  Tier 1                                                        30.65    204.94       -
  Total                                                         31.58    205.44       -
<FN>

--------------------
1.     All  securities  are  available  for  sale  and are stated at fair value.
2.     Loans  are  stated  at  gross  amounts  before allowance for loan losses.
3.     For  2000  and  1999  the  ratios  are  not  meaningful.
4.     Net  interest  income  divided  by  average  earning  assets.
5.     Noninterest  expense  divided  by  the  sum  of  net  interest income and
       noninterest  income,  net  of  gains  and  losses  on  sales  of  assets.
</TABLE>


                                        3
<PAGE>
                              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.

The  terrorist  attacks  that  occurred in New York City and Washington, D.C. on
September  11,  2001, and the United States' subsequent response to these events
have  resulted  in  a  general  economic  slowdown that may adversely affect our
banking  business.  Economic  slowdowns or recessions in our primary market area
may be accompanied by reduced demand for credit, decreasing interest margins and
declining  real  estate  values,  which  may in turn result in a decrease in net
earnings  and  an increased possibility of potential loan losses in the event of
default.  Any  sustained  period  of  decreased  economic  activity,  increased
delinquencies,  foreclosures  or  losses  could  limit our growth and negatively
affect  our  results of operations.  We cannot predict the extent or duration of
these  events  or  their  effect  upon  our  business  and operations.  We will,
however,  closely  monitor the effect of these events upon our business and make
adjustments  to  our  business  strategy  as  we  deem  necessary.

                                     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
second  quarter  of  2002.  Our  permanent  main  office  will  be  a two-story,
traditional  style  building.  We  anticipate  completion of the building in the
fourth  quarter  of  2002.  This  area  is  the  central  location for business,
residential,  community and shopping in Murrells Inlet and is on a major highway
serving  the  community.

During  2001, we completed the construction of our branch office located at 1134
North  Fraser  Street in Georgetown, South Carolina.  The branch office is a one
story,  traditional style building with three drive-up windows and one ATM.  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.  The  following discussion should be read with an understanding
of  the  Company's  short  history.


                                        4
<PAGE>
                              SUN BANCSHARES, INC.

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

                             RESULTS OF OPERATIONS

A  comparison between 2001 and 2000 is not relevant since the Bank was only open
for  business  for  approximately  one  and  a  half  months  in  2000.

FOR  THE  YEAR  ENDED  DECEMBER  31,  2001

Net  interest  income  for the year ended December 31, 2001 was $660,025.  Total
interest  income  was $1,071,612 and was partially offset by interest expense of
$411,587.  The  primary  components of interest income were interest from loans,
including  fees,  of $737,308, interest from federal funds sold of $199,303, and
interest  from  investment  securities  of  $129,151.

The provision for loan losses was $150,000 in 2001.  The charge to the provision
was 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, 2001 totaled $77,065.

Noninterest  expense  for  the  year ended December 31, 2001 totaled $1,601,042.
Salaries  and  employee benefits totaled $727,766 for the year.  Other operating
expenses  totaled  $873,276  for  the  year.

The  Company's net loss for the year ended December 31, 2001 was $630,779, after
recognition  of  an  income  tax  benefit  of  $383,173.

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

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 charge to the provision
was 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  $416,842  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, after
recognition  of  an  income tax benefit of $150,000.  As stated earlier, the net
loss  includes  pre-opening  expenses  of  $674,702.


                                        5
<PAGE>
                              SUN BANCSHARES, INC.

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

                              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 following table sets
forth,  for  2001,  certain information related to the Company's average balance
sheet  and  its average yields on assets and average costs of liabilities.  Such
yields  are  derived by dividing income or expense by the average balance of the
corresponding  assets  or  liabilities.  Average balances have been derived from
the  daily balances throughout the period indicated.  The year 2000 and 1999 are
not  presented  since  this  information  would  not  be  meaningful.

<TABLE>
<CAPTION>
AVERAGE  BALANCES,  INCOME  AND  EXPENSES,  AND  RATES

Year ended December 31,                                        2001
                                                  ----------------------------
                                                   AVERAGE   INCOME/   YIELD/
(Dollars in thousands)                             BALANCE   EXPENSE    RATE
                                                  ---------  --------  -------
<S>                                               <C>        <C>       <C>
 ASSETS:
   Earning Assets:
     Loans (1)                                    $  8,173   $    737    9.02%
     Securities, taxable (2)                         2,324        130    5.59
   Federal funds sold                                4,777        199    4.17
   Nonmarketable equity securities                     195          6    3.08
                                                  ---------  --------
     Total earning assets                           15,469      1,072    6.93
                                                             --------
   Cash and due from banks                             757
   Premises and equipment                            1,301
   Other assets                                        373
   Allowance for loan losses                           (80)
                                                  ---------
     Total assets                                 $ 17,820
                                                  =========

 LIABILITIES:
   Interest-Bearing Liabilities:
     Interest-bearing transaction accounts        $    612          7    1.14%
     Savings deposits                                2,695         84    3.12
     Time deposits                                   6,184        321    5.19
     Other short-term borrowings                        15          -       -
                                                  ---------  --------
       Total interest-bearing liabilities            9,506        412    4.33
                                                             --------
   Demand deposits                                   2,614
   Accrued interest and other liabilities               83
   Shareholders' equity                              5,617
                                                  ---------
       Total liabilities and shareholders' equity $ 17,820
                                                  =========
 Net interest spread                                                    2.60 %
 Net interest income                                         $    660
                                                             ========
 Net interest margin                                                    4.27 %

<FN>
(1)  The  effect  of  loans  fees  collected  on loans is not significant to the
     computations.  All  loans  and  deposits  are  domestic.
(2)  Average investment securities exclude the valuation allowance on securities
     available-for-sale.
</TABLE>


                                        6
<PAGE>
                              SUN BANCSHARES, INC.

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

                        NET INTEREST INCOME (continued)

ANALYSIS  OF  CHANGES  IN  NET  INTEREST  INCOME.  Because  the  Bank  had  only
approximately  $864,000 in average earnings assets and approximately $217,000 in
average interest-bearing liabilities during 2000, the changes in interest income
and  expense from 2000 to 2001 are primarily attributable to the increase in 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.

The  following  table  sets  forth  the  Company's  interest rate sensitivity at
December  31,  2001.

<TABLE>
<CAPTION>
INTEREST  SENSITIVITY  ANALYSIS

                                                         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                                  $       117   $    3,966   $      2,598   $   6,681   $       9,557   $16,238
   Securities available-for-sale                    -            -              -           -           4,384     4,384
   Nonmarketable securities                         -            -              -           -             195       195
   Federal funds sold                           1,304            -              -       1,304               -     1,304
                                          ------------  -----------  -------------  ----------  --------------  -------
     Total earning assets                       1,421        3,966          2,598       7,985          14,136    22,121
                                          ------------  -----------  -------------  ----------  --------------  -------

LIABILITIES
 Interest-bearing liabilities:
   Interest-bearing deposits:
     Demand deposits                              878            -              -         878               -       878
     Savings deposits                           4,039            -              -       4,039               -     4,039
     Time deposits                                368          897          7,974       9,239             833    10,072
                                          ------------  -----------  -------------  ----------  --------------  -------
       Total interest-bearing deposits          5,285          897          7,974      14,156             833    14,989
   Repurchase agreement                           500            -              -         500               -       500
                                          ------------  -----------  -------------  ----------  --------------  -------
     Total interest-bearing liabilities         5,785          897          7,974      14,656             833    15,489
                                          ------------  -----------  -------------  ----------  --------------  -------
 Period gap                               $    (4,364)  $    3,069   $     (5,376)  $  (6,671)  $      13,303
                                          ============  ===========  =============  ==========  ==============

 Cumulative gap                           $    (4,364)  $   (1,295)  $     (6,671)  $  (6,671)  $       6,632
                                          ============  ===========  =============  ==========  ==============

Ratio of cumulative gap to total
  earning assets                              (19.73)%      (5.86)%       (30.16)%    (30.16)%          29.98%
</TABLE>


                                        7
<PAGE>
                              SUN BANCSHARES, INC.

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

                        NET INTEREST INCOME (continued)

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 repurchase agreement is
reflected in the earliest repricing period since these borrowings mature daily.

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  liability  sensitive  over  all  time  periods  presented  within  one year.
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 a
liability-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.

                    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 1.00% to 1.50% 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 statement of income, 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 that it
believes  to be reasonable but which may or may not be accurate. Thus, there can
be no assurance that charge offs 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.


                                        8
<PAGE>
                              SUN BANCSHARES, INC.

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

               PROVISION AND ALLOWANCE FOR LOAN LOSSES (continued)

The following table sets forth certain information with respect to the Company's
allowance  for  loan  losses  for  the  years  ended December 31, 2001 and 2000.

<TABLE>
<CAPTION>
ALLOWANCE  FOR  LOAN  LOSSES

(Dollars in thousands)                                           2001     2000
                                                               --------  -------
<S>                                                            <C>       <C>
 Total loans outstanding at end of period                      $16,238   $  905
                                                               ========  =======

 Average loans outstanding (annualized)                        $ 8,173   $   47
                                                               ========  =======


 Balance of allowance for loan losses at beginning of period   $    15   $    -
                                                               --------  -------

 Loan losses                                                         -        -

 Recoveries of previous loan losses                                  -        -
                                                               --------  -------

 Net loan losses                                                     -        -

 Provision for loan losses                                         150       15
                                                               --------  -------

 Balance of allowance for loan losses at end of period         $   165   $   15
                                                               ========  =======

 RATIOS:

 Net charge-offs to average loans outstanding                       N/A      N/A
 Net charge-offs to loans at end of year                            N/A      N/A
 Allowance for loan losses to average loans                       2.02%   31.91%
 Allowance for loan losses to loans at end of year                1.02%    1.66%
 Net charge-offs to allowance for loan losses                       N/A      N/A
 Net charge-offs to provisions for loan losses                      N/A      N/A
</TABLE>

NONPERFORMING  ASSETS.  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.

There  were  no  nonperforming  assets  at  December  31,  2001  or  2000.

POTENTIAL  PROBLEM  LOANS.  At December 31, 2001, 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 1.00% to 1.50% of total loans outstanding to
provide  for  potential  problem  loans,  until  a  history  is  established.


                                        9
<PAGE>
                              SUN BANCSHARES, INC.

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

                         NONINTEREST INCOME AND EXPENSE

NONINTEREST  INCOME.  Total  noninterest  income  was $77,065 for the year ended
December  31,  2001.

Noninterest  income  totaled only $324 and $0.00 for the year ended December 31,
2000,  and  for  the  period  August 3, 1999 to December 31, 1999, respectively.

The  following  table  sets forth the principal components of noninterest income
for  the  year  ended  December  31,  2001.

<TABLE>
<CAPTION>
(Dollars in thousands)                   2001
                                         -----
<S>                                      <C>
 Service charges on deposit accounts     $  41
 Residential mortgage origination fees      20
 Other income                               16
                                         -----
   Total noninterest income              $  77
                                         =====
</TABLE>

NONINTEREST EXPENSE.  Salaries and employee benefits, which totaled $727,766 for
the year ended December 31, 2001, comprised the largest component of noninterest
expense.  Occupancy  expense  totaled  $244,751  for the year ended December 31,
2001.  Included  in  this  total  is  rent expense of $189,131.  Other operating
expenses  totaled  $628,525  for  the  year.

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 paid 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
$261,265  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  years ended December 31, 2001 and 2000 and for the period August 3, 1999 to
December  31,  1999.

<TABLE>
<CAPTION>
(Dollars in thousands)                    2001   2000   1999
                                         ------  -----  -----
<S>                                      <C>     <C>    <C>
Salaries and employee benefits           $  728  $ 281  $  50
Rent expense                                189    123
Other occupancy expense                      56     32
Furniture and equipment expense             111      7
Professional fees                           105     91
Office supplies, forms, and stationery       65     37
Data processing                             127     46
Other                                       220     81    114
                                         ------  -----  -----

  Total                                  $1,601  $ 698  $ 164
                                         ======  =====  =====
</TABLE>


                                       10
<PAGE>
                              SUN BANCSHARES, INC.

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

                                 EARNING ASSETS

LOANS.  Loans  are  the largest category of earning assets and 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, 2001, total loans were
$16,238,315  compared  to  $905,147  at  December  31,  2000.  Loans  averaged
$8,172,653  during  2001.

The following table sets forth the composition of the loan portfolio by category
at  December  31,  2001  and  2000.

<TABLE>
<CAPTION>
COMPOSITION  OF  LOAN  PORTFOLIO

                                      2001                2000
                             --------------------  --------------------
                                       PERCENT OF            PERCENT OF
(Dollars in thousands)        AMOUNT     TOTAL       AMOUNT    TOTAL
                             --------  ----------  --------  ----------
<S>                          <C>       <C>         <C>       <C>
 Commercial and industrial   $ 8,663       53.35%  $   398       43.98%
 Real estate:
 Construction                    996        6.13         -           -
 Mortgage-residential          4,701       28.95       211       23.31
 Consumer and other            1,878       11.57       296       32.71
                             --------  ----------  --------  ----------
  Total loans                 16,238      100.00%      905      100.00%
                                       ==========            ==========
 Allowance for loan losses      (165)                  (15)
                             --------              --------

 Net loans                   $16,073               $   890
                             ========              ========
</TABLE>

The largest component of loans in the Company's loan portfolio is commercial and
industrial loans.  At December 31, 2001, commercial and industrial loans totaled
$8,663,377  and  represented  53.35% of the total loan portfolio, an increase of
$8,265,544  over  the  December  31,  2000  amount.

Residential  mortgage loans totaled $4,700,606 at December 31, 2001.  This is an
increase  of  $4,489,696  over  the  December  31,  2000  total  of  $210,910.
Residential real estate loans consist of first and second mortgages on single or
multi-family  residential  dwellings  that  are  not held for sale.  Real estate
construction  loans  totaled  $996,432  at  December  31,  2001.  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 $1,877,900 at December 31, 2001 and comprised
11.57%  of  the total portfolio, an increase of $1,581,496 over the December 31,
2000  amount.

The  Company's  loan  portfolio  reflects  the  diversity  of  its  market.  The
Company's  home  office  is  located  in Murrells Inlet, South Carolina, and the
Company  opened a branch in Georgetown, South Carolina during 2001.  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.  While Georgetown is also
affected  by  the  coast, it contains elements of medium and light manufacturing
such  as  paper  mills.


                                       11
<PAGE>
                              SUN BANCSHARES, INC.

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

                           EARNING ASSETS (continued)

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,  by  type,  at  December  31,  2001.

<TABLE>
<CAPTION>
LOAN  MATURITY  SCHEDULE  AND  SENSITIVITY  TO  CHANGES  IN  INTEREST  RATES

                                                      OVER ONE
                                                        YEAR
December 31, 2001                      ONE YEAR OR     THROUGH    OVER FIVE
(Dollars in thousands)                     LESS      FIVE YEARS     YEARS      TOTAL
                                       ------------  -----------  ----------  -------
<S>                                    <C>           <C>          <C>         <C>
 Commercial and industrial             $      3,649  $     4,179  $      835  $ 8,663
 Real estate                                  2,562        3,067          68    5,697
 Consumer and other                             470        1,283         125    1,878
                                       ------------  -----------  ----------  -------

                                       $      6,681  $     8,529  $    1,028  $16,238
                                       ============  ===========  ==========  =======

Loans maturing after one year with:
  Fixed interest rates                                                        $ 9,557
  Floating interest rates                                                           -
                                                                              -------
                                                                              $ 9,557
                                                                              =======
</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.

INVESTMENT  SECURITIES.  The investment securities portfolio is also a component
of the Company's total earning assets.  All securities, except for nonmarketable
equity  securities,  were  designated as available-for-sale and were recorded at
their  estimated  fair  value.  Total  amortized  cost  of  securities
available-for-sale averaged $2,323,832 in 2001.  At December 31, 2001, the total
securities  available-for-sale  was $4,384,229.  Nonmarketable equity securities
consist  of  Federal  Reserve  Bank  stock  recorded at original cost, which was
$195,000  at  December  31,  2001  and  2000.

The  following  table sets forth the book value of securities available-for-sale
held  by  the  Company  at  December  31,  2001.

<TABLE>
<CAPTION>
BOOK  VALUE  OF  SECURITIES  AVAILABLE-FOR-SALE
DECEMBER 31,                                 2001
                                            ------
<S>                                         <C>
(Dollars in thousands)
U.S. Government agencies and corporations   $2,000
Mortgage-backed securities                   2,363
                                            ------
  Total securities                          $4,363
                                            ======
</TABLE>

The  Company  did  not  own  any  available-for-sale  securities  during  2000.

The  following  table  sets forth the scheduled maturities and average yields of
securities  available-for-sale  held  at  December  31,  2001.

<TABLE>
<CAPTION>
INVESTMENT  SECURITIES  AVAILABLE-FOR-SALE  MATURITY  DISTRIBUTION  AND  YIELDS

                                               AFTER ONE YEAR BUT
DECEMBER 31,                                    WITHIN FIVE YEARS
                                               -------------------
(Dollars in thousands)                           AMOUNT     YIELD
                                               ----------  -------
<S>                                            <C>         <C>
U.S. Government agencies and corporations (1)  $  2,018      5.09%
                                               ==========  =======
<FN>
(1)  Excludes  mortgage-backed  securities  totaling  $2,365,948 with a yield of
     5.08%.
</TABLE>

                                       12
<PAGE>
                              SUN BANCSHARES, INC.

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

                           EARNING ASSETS (continued)

Other  attributes  of the securities portfolio, including yields and maturities,
are  discussed  above  in  "---Net  Interest  Income---  Interest  Sensitivity."

SHORT-TERM  INVESTMENTS.  Short-term  investments,  which consisted primarily of
federal  funds  sold,  averaged  $4,776,866  during 2001.  At December 31, 2001,
federal  funds  sold totaled $1,304,000.  These funds are an important source of
the  Company's  liquidity.  Federal  funds  are generally invested in an earning
capacity  on  an  overnight  basis.

                 DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES

Interest-bearing  liabilities  and interest-bearing deposits averaged $9,506,262
and  $9,491,193,  respectively,  during  2001.

Average  interest-bearing  deposits  totaled  $9,491,193 during 2001 while total
deposits  averaged  $12,104,344  during 2001.  At December 31, 2001 and December
31,  2000,  total  deposits  were  $19,200,114  and  $1,939,343,  respectively.

The  following  table  sets  forth the deposits of the Company by category as of
December  31,  2001  and  2000.

<TABLE>
<CAPTION>
DEPOSITS
                                            2001                  2000
                                    --------------------  --------------------
                                             PERCENT OF            PERCENT OF
(Dollars in thousands)              AMOUNT      TOTAL     AMOUNT      TOTAL
                                    -------  -----------  -------  -----------
<S>                                 <C>      <C>          <C>      <C>
Demand deposit accounts             $ 4,211       21.93%  $   207       10.68%
NOW accounts                            878        4.57       171        8.82
Money market accounts                 3,621       18.86     1,166       60.14
Savings accounts                        417        2.17         9        0.46
Time deposits less than $100,000      5,162       26.89       219       11.29
Time deposits of $100,000 or more     4,911       25.58       167        8.61
                                    -------  -----------  -------  -----------
  Total deposits                    $19,200      100.00%  $ 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 $14,289,106 at December
31,  2001  compared  to  $1,772,376  at  December  31,  2000.

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 84.57% at December 31, 2001.  The maturity
distribution  of  the  Company's  time deposits $100,000 or more at December 31,
2001,  is  set  forth  in  the  following  table:

<TABLE>
<CAPTION>
MATURITIES  OF  CERTIFICATES  OF  DEPOSIT  OF  $100,000  OR  MORE

                                                                            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   $         814  $      1,316  $    2,181  $         600  $4,911
</TABLE>

Approximately  16.58%  of  the  Company's  time deposits of $100,000 or more had
scheduled  maturities  within  three  months,  and  87.78%  of  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.


                                       13
<PAGE>
                              SUN BANCSHARES, INC.

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

                                     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.

<TABLE>
<CAPTION>
RISK-BASED  CAPITAL  RATIOS

                                                            THE
(Dollars in thousands)                        THE BANK    COMPANY
                                             ----------  ---------
<S>                                          <C>         <C>
December 31, 2001
   Tier 1 capital                            $   5,320   $  5,429
   Tier 2 capital                                  165        165
                                             ----------  ---------
     Total qualifying capital                $   5,485   $  5,594
                                             ==========  =========

Risk-adjusted total assets
    (including off-balance-sheet exposures)  $  17,712   $ 17,712
                                             ==========  =========

Risk-based capital ratios:
   Tier 1 risk-based capital ratio               30.04%     30.65%
   Total risk-based capital ratio                30.97%     31.58%
   Tier 1 leverage ratio                         21.85%     22.29%
</TABLE>

                   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.  The Company believes that its
capital  and  liquidity  resources  are  adequate  to  meet its operating needs.

                               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.


                                       14
<PAGE>
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                     IMPACT OF OFF-BALANCE-SHEET INSTRUMENTS

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 legally binding agreements
to  lend  to  a  customer at predetermined interest rates 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 nonperformance 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.  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.  Standby letters of credit often
expire  without being used. The Company believes that through various sources of
liquidity, it has the necessary resources to meet obligations arising from these
financial  instruments.

The  Company  uses  the  same  credit underwriting procedures for commitments to
extend  credit  and  standby  letters  of credit as it does for on-balance-sheet
instruments.  The credit worthiness of each borrower is evaluated and the amount
of  collateral,  if  deemed  necessary,  is  based  on  the  credit  evaluation.
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  Company  is  not  involved  in off-balance-sheet contractual relationships,
other  than those disclosed in this report, that could result in liquidity needs
or  other  commitments  or  could  significantly  impact  earnings.

As of December 31, 2001, commitments to extend credit totaled $1,577,123.

                    ACCOUNTING AND FINANCIAL REPORTING ISSUES

In  July  2001, the Financial Accounting Standards Board (FASB) issued Statement
of  Financial  Accounting  Standards (SFAS) 141, Business Combinations, and SFAS
142,  Goodwill  and Other Intangible Assets.  SFAS 141 eliminates the pooling of
interests method of accounting for business combinations and requires the use of
the  purchase  method.  The  Statement  also  requires that intangible assets be
reported  separately  from  goodwill.  This  Statement  is  effective  for  all
transactions  initiated  after  June  30,  2001.  Under SFAS 142, goodwill is no
longer  subject  to amortization; however, it should be evaluated for impairment
on  at  least  an  annual basis and adjusted to its fair value.  In addition, an
acquired  intangible  should  be  separately  recognized  if  the benefit of the
intangible  asset  is  obtained through contractual or other legal rights, or if
the  intangible  asset  can be sold, transferred, licensed, rented or exchanged,
regardless  of  intent  to  do  so.  However, the FASB recommends that financial
institutions continue to follow the basic guidelines of SFAS 72 in recording and
amortizing  goodwill  and  other  unidentifiable intangible assets.  The Company
adopted  SFAS  141  on  July  1,  2001.  SFAS 142 is effective for entities with
fiscal years beginning after December 15, 2001.  The Company plans to adopt SFAS
142  on  January  1,  2002.  The  adoption of these Statements will not have any
impact  on  the  consolidated  financial  statements.

In  June  1998,  the FASB issued SFAS 133, Accounting for Derivative Instruments
and  Hedging  Activities, which as amended by SFAS 137 and SFAS 138 is 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 133 on
January  1,  2001.  The  adoption  of  SFAS  133  did not have any impact on the
consolidated  financial statements since the Company did not have any derivative
instruments  nor any derivative instruments embedded in other contracts in 2001.


                                       15
<PAGE>
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                              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.


                                       16
<PAGE>
                       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
W. CLAYTON HESLOP, CPA
TIMOTHY S. VOGEL, 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, 2001 and 2000, and the related consolidated statements
of  income,  changes in shareholders' equity and other comprehensive income, and
cash  flows  for  the  years ended December 31, 2001 and 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 auditing standards generally accepted
in  the  United  States  of  America.  Those  standards require that we plan and
perform  the  audit  to  obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test  basis,  evidence  supporting  the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made  by  management,  as well as evaluating the overall
financial  statement  presentation.  We  believe  that  our  audits  provide  a
reasonable  basis  for  our  opinion.

In  our  opinion,  the financial statements referred to above present fairly, in
all  material  respects,  the  financial position of Sun Bancshares, Inc., as of
December 31, 2001 and 2000, and the results of its operations and cash flows for
the years ended December 31, 2001 and 2000, and for the period August 3, 1999 to
December  31,  1999, in conformity with accounting principles generally accepted
in  the  United  States  of  America.


/s/  Tourville, Simpson & Caskey, L.L.P.

Tourville, Simpson & Caskey, L.L.P.
Columbia, South Carolina
March 6, 2002


                                       17
<PAGE>
<TABLE>
<CAPTION>
                              SUN BANCSHARES, INC.

                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2001 AND 2000


                                                               2001         2000
                                                           ------------  -----------
<S>                                                        <C>           <C>
ASSETS:
  Cash and cash equivalents:
   Cash and due from banks                                 $ 1,025,008   $  163,515
   Federal funds sold                                        1,304,000    6,010,000
                                                           ------------  -----------
     Total cash and cash equivalents                         2,329,008    6,173,515
                                                           ------------  -----------

 Investment securities:
   Securities available-for-sale                             4,384,229            -
   Nonmarketable equity securities                             195,000      195,000
                                                           ------------  -----------
     Total investment securities                             4,579,229      195,000
                                                           ------------  -----------

 Loans receivable                                           16,238,315      905,147
   Less allowance for loan losses                             (164,787)     (15,000)
                                                           ------------  -----------
     Loans, net                                             16,073,528      890,147

 Premises, furniture and equipment, net                      1,661,354      573,799
 Accrued interest receivable                                   122,234        4,115
 Other assets                                                  583,689      191,800
                                                           ------------  -----------

     Total assets                                          $25,349,042   $8,028,376
                                                           ============  ===========

LIABILITIES:
  Deposits:
   Noninterest-bearing transaction accounts                $ 4,210,483   $  207,226
   Interest-bearing transaction accounts                       878,031      170,840
   Savings                                                   4,038,849    1,175,203
   Time deposits $100,000 and over                           4,911,008      166,967
   Other time deposits                                       5,161,743      219,107
                                                           ------------  -----------
     Total deposits                                         19,200,114    1,939,343

 Securities sold under agreement to repurchase                 500,000            -
 Accrued interest payable                                      188,144        2,127
 Other liabilities                                              18,501       27,307
                                                           ------------  -----------
     Total liabilities                                      19,906,759    1,968,777
                                                           ------------  -----------

  Commitments and Contingencies (Notes 5, 10, 12, 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
  authorized; 715,000 shares issued and outstanding          6,779,216    6,779,216
  Retained earnings (deficit)                               (1,350,396)    (719,617)
  Accumulated other comprehensive  income                       13,463            -
                                                           ------------  -----------
     Total shareholders' equity                              5,442,283    6,059,599
                                                           ------------  -----------

     Total liabilities and shareholders' equity            $25,349,042   $8,028,376
                                                           ============  ===========
</TABLE>


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


                                       18
<PAGE>
<TABLE>
<CAPTION>
                              SUN BANCSHARES, INC.

                        CONSOLIDATED STATEMENTS OF INCOME
               FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000 AND
               FOR THE PERIOD AUGUST 3, 1999 TO DECEMBER 31, 1999


                                                                 2001         2000        1999
                                                             ------------  ----------  ----------
<S>                                                          <C>           <C>         <C>
INTEREST INCOME:
 Loans, including fees                                       $   737,308   $   5,748   $       -
 Investment securities:
   Taxable                                                       129,151           -           -
   Nonmarketable equity securities                                 5,850           -           -
 Federal funds sold                                              199,303      60,255           -
 Other interest income                                                 -       1,226         237
                                                             ------------  ----------  ----------
    Total                                                      1,071,612      67,229         237
                                                             ------------  ----------  ----------

INTEREST EXPENSE:
 Time deposits $100,000 and over                                 170,050         505           -
 Other deposits                                                  241,418       5,877           -
 Other interest expense                                              119      52,863       1,146
                                                             ------------  ----------  ----------
    Total                                                        411,587      59,245       1,146
                                                             ------------  ----------  ----------

NET INTEREST INCOME (EXPENSE)                                    660,025       7,984        (909)

Provision for loan losses                                        150,000      15,000           -
                                                             ------------  ----------  ----------

NET INTEREST INCOME (LOSS) AFTER PROVISION FOR LOAN LOSSES       510,025      (7,016)       (909)
                                                             ------------  ----------  ----------

OTHER OPERATING INCOME:
 Service charges on deposit accounts                              41,420         180           -
 Residential mortgage origination fees                            19,833           -           -
 Other income                                                     15,812         144           -
                                                             ------------  ----------  ----------
    Total                                                         77,065         324           -
                                                             ------------  ----------  ----------

OTHER OPERATING EXPENSES:
 Salaries and employee benefits                                  727,766     281,287      50,423
 Occupancy expense                                               244,751     155,577           -
 Furniture and equipment expense                                 111,052       6,820           -
 Other operating expenses                                        517,473     254,445     113,464
                                                             ------------  ----------  ----------
    Total                                                      1,601,042     698,129     163,887
                                                             ------------  ----------  ----------

LOSS BEFORE INCOME TAXES                                      (1,013,952)   (704,821)   (164,796)

Income tax benefit                                              (383,173)   (150,000)          -
                                                             ------------  ----------  ----------

NET LOSS                                                     $  (630,779)  $(554,821)  $(164,796)
                                                             ============  ==========  ==========

EARNINGS PER SHARE:
  Basic losses per share                                     $     (0.88)  $   (4.73)  $       -
  Diluted losses per share                                   $     (0.88)  $   (4.73)  $       -
</TABLE>


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


                                       19
<PAGE>
<TABLE>
<CAPTION>
                              SUN BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
             FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000 AND FOR
                 THE PERIOD AUGUST 3, 1999 TO DECEMBER 31, 1999

                                                                                 ACCUMULATED
                                      COMMON STOCK                                  OTHER
                                   ---------------------   RETAINED EARNINGS    COMPREHENSIVE
                                    SHARES     AMOUNT          (DEFICIT)        INCOME (LOSS)      TOTAL
                                   --------  -----------  -------------------  ---------------  -----------
<S>                                <C>       <C>          <C>                  <C>              <C>
Issuance of common stock                 1   $       10   $                    $                $       10

Net loss                                                            (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

Net loss                                                            (630,779)                     (630,779)

Other comprehensive income,
     net of tax expense of $7,907                                                       13,463      13,463
                                                                                                -----------
Comprehensive income                                                                              (617,316)
                                   --------  -----------  -------------------  ---------------  -----------
BALANCE, DECEMBER 31, 2001         715,000   $6,779,216   $       (1,350,396)  $        13,463  $5,442,283
                                   ========  ===========  ===================  ===============  ===========
</TABLE>


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


                                       20
<PAGE>
<TABLE>
<CAPTION>
                              SUN BANCSHARES, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
               FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000 AND
               FOR THE PERIOD AUGUST 3, 1999 TO DECEMBER 31, 1999

                                                                       2001           2000         1999
                                                                  -------------  ------------  ----------
<S>                                                               <C>            <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net loss                                                         $   (630,779)  $  (554,821)  $(164,796)
 Adjustments to reconcile net loss to net cash used
 by operating activities:
  Provision for possible loan losses                                   150,000        15,000           -
  Depreciation and amortization expense                                115,121        11,614           -
  Amortization less accretion on securities                              3,651             -           -
  Deferred income tax benefit                                         (383,173)     (150,000)          -
  Increase in interest receivable                                     (118,119)       (4,115)          -
  Increase in interest payable                                         186,017         2,127           -
  Increase in other assets                                             (16,623)      (32,633)     (9,167)
  Increase (decrease) in other liabilities                              (8,806)       27,307           -
                                                                  -------------  ------------  ----------
      Net cash used by operating activities                           (702,711)     (685,521)   (173,963)
                                                                  -------------  ------------  ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
 Purchases of securities available-for-sale                         (5,611,776)            -           -
 Maturities of securities available-for-sale                         1,245,266             -           -
 Net increase in loans to customers                                (15,333,381)     (905,147)          -
 Purchases of premises and equipment                                (1,202,676)     (554,673)    (30,740)
 Purchase of Federal Home Loan Bank stock                                    -      (195,000)          -
                                                                  -------------  ------------  ----------
      Net cash used by investing activities                        (20,902,567)   (1,654,820)    (30,740)
                                                                  -------------  ------------  ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
 Net increase in demand deposits, interest-bearing
 transaction accounts and savings accounts                           7,574,094     1,553,269           -
 Net increase in certificates of deposit and other time deposits     9,686,677       386,074           -
 Net increase (decrease) in other borrowings                                        (250,000)    250,000
 Increase in securities sold under agreement to repurchase             500,000             -           -
 Cancellation of common stock                                                -           (10)          -
 Proceeds from issuance of common stock                                      -     7,150,000          10
 Costs of common stock issuance                                              -      (336,227)    (34,557)
                                                                  -------------  ------------  ----------
      Net cash provided by financing activities                     17,760,771     8,503,106     215,453
                                                                  -------------  ------------  ----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                (3,844,507)    6,162,765      10,750

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                       6,173,515        10,750           -
                                                                  -------------  ------------  ----------

CASH AND CASH EQUIVALENTS, END OF PERIOD                          $  2,329,008   $ 6,173,515   $  10,750
                                                                  =============  ============  ==========
</TABLE>


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


                                       21
<PAGE>
                              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>
<CAPTION>
<S>                                                                      <C>
Cash and cash equivalents                                                $ 5,618,424
Premises and equipment                                                       397,391
Prepaid expenses                                                              54,352
Accrued liabilities                                                           (5,213)
Common stock subcription 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 securities in which the Company invests are
discussed  in  Note  3.  The  types  of lending in which the Company engages are
discussed  in  Note 4.  The Company does not have any significant concentrations
to  any  one  industry  or  customer.


                                       22
<PAGE>
                              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.

SECURITIES  AVAILABLE-FOR-SALE  -  Securities  available-for-sale are carried at
------------------------------
amortized cost and adjusted to estimated fair value by recognizing the aggregate
unrealized  gains  or losses in a valuation account.  Aggregate market valuation
adjustments  are  recorded in shareholders' equity net of deferred income taxes.
Reductions  in  market value considered by management to be other than temporary
are  reported  as  a  realized  loss  and  a  reduction in the cost basis of the
security.  The  adjusted  cost  basis  of  investments  available-for-sale  is
determined  by specific identification and is used in computing the gain or loss
upon  sale.

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,  2001  and  2000, the Company's investment in Federal Reserve Bank
stock  was  $195,000.

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.

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 15.

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  14.


                                       23
<PAGE>
                              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  2001  and  2000,  interest paid on deposits and other borrowings totaled
$225,570  and  $57,118,  respectively.  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 2001, 2000, or for the period August 3,
1999  to  December  31,  1999.

COMPREHENSIVE  INCOME  - Accounting principles generally require that recognized
---------------------
revenue,  expenses,  gains,  and  losses  be  included  in net income.  Although
certain  changes  in assets and liabilities, such as unrealized gains and losses
on  available-for-sale  securities,  are reported as a separate component of the
equity  section  of  the  balance  sheet, such items, along with net income, are
components  of  comprehensive  income.

The  components  of  other  comprehensive income and related tax effects for the
years  ended  December  31,  2001  and 2000 and for the period August 3, 1999 to
December  31,  1999  are  as  follows:

<TABLE>
<CAPTION>
                                                                2001    2000   1999
                                                              --------  -----  -----
<S>                                                           <C>       <C>    <C>
Unrealized gains on available-for-sale securities             $21,370   $   -  $   -
Reclassification adjustment for gains realized in net income        -       -      -
                                                              --------  -----  -----
Net unrealized gains on available-for-sale securities          21,370       -      -

Tax effect                                                     (7,907)      -      -
                                                              --------  -----  -----
Net-of-tax amount                                             $13,463   $   -  $   -
                                                              ========  =====  =====
</TABLE>


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  16.

RECENT  ACCOUNTING  PRONOUNCEMENTS  -  In  July  2001,  the Financial Accounting
----------------------------------
Standards  Board  (FASB)  issued  SFAS 141, Business Combinations, and SFAS 142,
Goodwill  and  Other  Intangible  Assets.  SFAS  141  eliminates  the pooling of
interests method of accounting for business combinations and requires the use of
the  purchase  method.  The  Statement  also  requires that intangible assets be
reported  separately  from  goodwill.  This  Statement  is  effective  for  all
transactions  initiated  after  June  30,  2001.  Under SFAS 142, goodwill is no
longer  subject  to amortization; however, it should be evaluated for impairment
on  at  least  an  annual basis and adjusted to its fair value.  In addition, an
acquired  intangible  should  be  separately  recognized  if  the benefit of the
intangible  asset  is  obtained through contractual or other legal rights, or if
the  intangible  asset  can be sold, transferred, licensed, rented or exchanged,
regardless  of  intent  to  do  so.  However, the FASB recommends that financial
institutions continue to follow the basic guidelines of SFAS 72 in recording and
amortizing  goodwill  and  other  unidentifiable intangible assets.  The Company
adopted  SFAS  141  on January 1, 2001.  SFAS 142 is effective for entities with
fiscal years beginning after December 15, 2001.  The Company plans to adopt SFAS
142  on  January  1,  2002.  The  adoption of these Statements will not have any
impact  on  the  consolidated  financial  statements.

In  June  1998,  the FASB issued SFAS 133, Accounting for Derivative Instruments
and  Hedging  Activities, which as amended by SFAS 137 and SFAS 138 is 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 133 on
January  1,  2001.  The  adoption  of  SFAS  133  did not have any impact on the
consolidated  financial statements since the Company did not have any derivative
instruments  nor any derivative instruments embedded in other contracts in 2001.

RECLASSIFICATIONS  - Certain captions and amounts in the 2000 and 1999 financial
-----------------
statements  were  reclassified  to  conform  with  the  2001  presentation.


                                       24
<PAGE>
                              SUN BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 2001, the requirement
was met by the cash balance in the account and by the line available for federal
funds.


NOTE  3  -  INVESTMENT  SECURITIES
----------------------------------

The amortized cost and estimated fair values of securities available-for-sale at
December  31,  2001  were:

<TABLE>
<CAPTION>
                                            AMORTIZED  GROSS UNREALIZED  ESTIMATED FAIR
                                                       ----------------
                                              COST      GAINS   LOSSES        VALUE
                                           ----------  -------  -------  ---------------
<S>                                        <C>         <C>      <C>      <C>
DECEMBER 31, 2001
U.S. government agencies and corporations  $2,000,000  $25,000  $ 6,719  $     2,018,281
Mortgage-backed securities                  2,362,859   12,319    9,230        2,365,948
                                           ----------  -------  -------  ---------------

    Total                                  $4,362,859  $37,319  $15,949  $     4,384,229
                                           ==========  =======  =======  ===============
</TABLE>

There  were  no  sales  of  securities  in  2001.

The  following is a summary of maturities of securities available-for-sale as of
December  31,  2001.  The  amortized cost and estimated fair values are based on
the  contractual  maturity dates.  Actual maturities may differ from contractual
maturities  because  borrowers  may have the right to call or prepay obligations
with  or  without  penalty.

<TABLE>
<CAPTION>
                                                   SECURITIES
                                               AVAILABLE-FOR-SALE
                                           --------------------------
                                           AMORTIZED   ESTIMATE FAIR
                                              COST         VALUE
                                           ----------  --------------
<S>                                        <C>         <C>
Due after one year but within five years   $3,447,520  $    3,457,389
Due after five years but within ten years     915,339         926,840
                                           ----------  --------------

  Total                                    $4,362,859  $    4,384,229
                                           ==========  ==============
</TABLE>

At  December  31, 2001, securities having an amortized cost of $1,099,130 and an
estimated  fair  value of $1,090,915 were pledged as collateral to secure public
deposits  and  for  other  purposes  as  required  and  permitted  by  law.


                                       25
<PAGE>
                              SUN BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE  4  -  LOANS
-----------------

Major classifications of loans receivable at December 31, 2001 and 2000 are
summarized as follows:

                                             2001        2000
                                          -----------  --------

 Real estate - construction               $   996,432  $      -
 Real estate - mortgage                     4,700,606   210,910
 Commercial and industrial                  8,663,377   397,833
 Consumer and other                         1,877,900   296,404
                                          -----------  --------

     Total gross loans                    $16,238,315  $905,147
                                          ===========  ========

There  were  no  loans in nonaccrual status and no loans past due ninety days or
more  and  still  accruing  interest  at  December  31,  2001  or  2000.

<TABLE>
<CAPTION>
                                                     2001      2000
                                                   ---------  -------
<S>                                                <C>        <C>
 Balance, beginning of year                        $ 15,000   $     -
 Provision charged to operations                    150,000    15,000
 Recoveries on loans previously charged-off               -         -
 Loans charged-off                                     (213)        -
                                                   ---------  -------

 Balance, end of year                              $164,787   $15,000
                                                   =========  =======
</TABLE>

NOTE  5  -  PREMISES  AND  EQUIPMENT
------------------------------------

Premises and equipment consisted of the following at December 31, 2001 and 2000:

                                                     2001       2000
                                                  ----------  --------

 Buildings and improvements                       $1,114,959  $133,143
 Furniture and equipment                             551,154   286,444
 Construction in progress                            121,976   165,826
                                                  ----------  --------
    Total                                          1,788,089   585,413

 Less, accumulated depreciation                      126,735    11,614
                                                  ----------  --------

    Premises and equipment, net                   $1,661,354  $573,799
                                                  ==========  ========

As of December 31, 2001 and 2000, overdrafts in the amount of $5,208 and $3,818,
respectively,  were  classified  as  loans.


NOTE  6  -  DEPOSITS
--------------------

At December 31, 2001, the scheduled maturities of certificates of deposit were
as follows:

<TABLE>
<CAPTION>
MATURING IN                       AMOUNT
-----------                     -----------
<S>                             <C>
 2002                           $ 9,239,378
 2003                               833,373
                                -----------

  Total                         $10,072,751
                                ===========
</TABLE>

As of December 31, 2001 and 2000, overdrafts in the amount of $5,208 and $3,818,
respectively, were classified as loans.


                                       26
<PAGE>
                              SUN BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE  7  -  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, 2001,
were  negative  and  not  available  to  pay  cash dividends to the Company.  At
December  31,  2001,  total  shareholders'  equity  of  the Bank was $5,334,101.


NOTE  8  -  OTHER  OPERATING  EXPENSES
--------------------------------------

Other  operating expenses for the years ended December 31, 2001 and 2000 and for
the  period  August  3,  1999  to  December  31,  1999  are  summarized  below:

                                          2001      2000      1999
                                        --------  --------  --------
Professional fees                       $105,205  $ 91,236  $ 80,470
Office supplies, forms, and stationery    65,492    36,546     4,821
Data processing                          126,853    46,471         -
Other                                    219,923    80,192    28,173
                                        --------  --------  --------

    Total                               $517,473  $254,445  $113,464
                                        ========  ========  ========

NOTE  9  -  INCOME  TAXES
-------------------------

Income  tax  benefit  for the years ended December 31, 2001 and 2000 and for the
period  August  3,  1999  to  December  31,  1999  are  summarized  as  follows:

                                                 2001        2000     1999
                                              ----------  ----------  -----

Change in deferred income taxes:
  Federal                                     $(342,112)  $(130,769)  $   -
  State                                         (33,154)    (19,231)      -
                                              ----------  ----------  -----

Income tax benefit                            $(375,266)  $(150,000)  $   -
                                              ==========  ==========  =====

Income tax expense is allocated as follows:
  To continuing operations                    $(383,173)  $(150,000)  $   -
  To shareholders' equity                         7,907           -       -
                                              ----------  ----------  -----

    Income tax expense (benefit)              $(375,266)  $(150,000)  $   -
                                              ==========  ==========  =====


                                       27
<PAGE>
                              SUN BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE  9  -  INCOME  TAXES  (continued)
-------------------------

The gross amounts of deferred tax assets and deferred tax liabilities as of
December 31, 2001 and 2000 were as follows:

<TABLE>
<CAPTION>
                                                          2001        2000
                                                       ----------  ----------
<S>                                                    <C>         <C>
Deferred tax assets:
  Allowance for loan losses                            $  60,961   $   5,851
  Net operating loss carryforward                        441,621      60,264
  Organization and preopening costs                      212,610     276,543
  Depreciation                                             1,542         554
  Contribution carryforward                                2,762         472
                                                       ----------  ----------
    Total deferred tax assets                            719,496     343,684
Less, valuation allowance                               (186,323)   (193,684)
                                                       ----------  ----------
    Net deferred tax assets                              533,173     150,000
Deferred tax liabilities:
  Net unrealized gain on available-for-sale securities     7,907           -
                                                       ----------  ----------

  Net deferred tax asset recognized                    $ 525,266   $ 150,000
                                                       ==========  ==========
</TABLE>

Deferred  tax  assets represent the future tax benefit of deductible differences
and,  if  it's  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, 2001, management has determined that
it is more likely than not that $533,173 of the total deferred tax asset will be
realized,  and  accordingly,  has established a valuation allowance of $186,323.

The  Company  has  a  net operating loss carryforward for income tax purposes of
$1,146,914 as of December 31, 2001.  This net operating loss expires in the year
2021.

A  reconciliation  between  the  income  tax  benefit and the amount computed by
applying the federal statutory rate of 34% to income before income taxes for the
years  ended  December  31,  2001  and 2000 and for the period August 3, 1999 to
December  31,  1999  follows:

<TABLE>
<CAPTION>
                                                          2001        2000       1999
                                                      ----------  ----------  ---------
<S>                                                   <C>         <C>         <C>
Tax benefit at statutory rate                         $(344,744)  $(239,639)  $(56,031)
State income tax, net of federal income tax benefit     (22,403)    (12,692)    (4,894)
Change in the deferred tax asset valuation allowance     (7,361)    132,759     60,925
Other                                                    (8,665)    (30,428)         -
                                                      ----------  ----------  ---------

Income tax benefit                                    $(383,173)  $(150,000)  $      -
                                                      ==========  ==========  =========
</TABLE>

NOTE  10  -  LEASES
-------------------

As of December 31, 2001, the Company had entered into the following three
operating leases:

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 25 years with renewal options for a total of 15 additional
years.  The  lease  calls for the Company to pay taxes, insurance and repairs on
the  leased property.  Rental expense for this property was $90,000 for the year
ended  December  31,  2001.

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 2002.  The monthly rental rate is $2,000.  The amount charged to earnings for
rental  expense  of  this  property  was $24,000 for the year ended December 31,
2001.


                                       28
<PAGE>
                              SUN BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 10 - LEASES  (continued)
----------------

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 $55,000 for the year
ended  December  31,  2001.

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:

                    2002              $169,000
                    2003               145,000
                    2004               145,000
                    2005               145,000
                    2006               145,000
                                      --------

                                      $749,000
                                      ========

NOTE  11  -  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, 2001 and 2000 the Bank had related party
loans  totaling  $2,940,022 and $378,853, respectively.  During 2001, $2,885,918
of  new  loans  were  made  to  related parties and repayments totaled $324,749.

During  2001, lease payments of $114,000 were paid to two separate entities that
were  controlled  by  two  directors  of  the  Bank.  See  Note  10.

NOTE  12  -  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, 2001, 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.


NOTE  13  -  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, 2000
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, 2001, none of the warrants had been exercised or cancelled.
At December 31, 2001, 97,117 warrants were exercisable.


                                       29
<PAGE>
                              SUN BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE  14  -  STOCK  COMPENSATION  PLAN
--------------------------------------

Effective July 17, 2000, the Company adopted an Incentive Stock Option Plan (the
Plan).  The  Plan  provides  for the granting of 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.  At  a  minimum, options granted before July 17, 2003 can be granted that
vest  ratably  over a three-year period beginning with the date of grant.  After
July 17, 2003, an option can be granted that is fully exercisable upon the grant
date.  At December 31, 2001, 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:


                                           2001        2000
                                        ----------  ----------
Net loss:
  As reported                           $(630,779)  $(554,821)
  Pro forma                              (674,655)   (556,513)

Basic losses per share:
  As reported                           $   (0.88)  $   (4.73)
  Pro forma                                 (0.94)      (4.75)

Diluted losses per share:
  As reported                           $   (0.88)  $   (4.73)
  Pro forma                                 (0.94)      (4.75)


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.

A  summary  of  the status of the Company's stock option plan as of December 31,
2001  and  2000,  and  changes  during  the  period  is  presented  below:

<TABLE>
<CAPTION>
                                             2001                2000
                                     -------------------  -------------------
                                               WEIGHTED-            WEIGHTED-
                                               AVERAGE              AVERAGE
                                               EXERCISE             EXERCISE
                                     OPTIONS    PRICE     OPTIONS    PRICE
                                     -------  ----------  -------  ----------
<S>                                  <C>      <C>         <C>      <C>
 Outstanding at beginning of period   50,750  $    10.00        -  $        -
 Granted                                   -           -   50,750       10.00
 Exercised                                 -           -        -           -
 Cancelled                                 -           -        -           -
                                     -------  ----------  -------  ----------

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

At  December  31,  2001,  10,150 options were exercisable.  The weighted average
remaining  life  and  exercise  price  for  both exercisable and non exercisable
options  was  8.83  years  and  $10  per  options,  respectively.


                                       30
<PAGE>
                              SUN BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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 legally binding agreements
to  lend  to  a  customer at predetermined interest rates 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 nonperformance 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.  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.  Standby letters of credit often
expire  without being used. The Company believes that through various sources of
liquidity, it has the necessary resources to meet obligations arising from these
financial  instruments.

The  Company  uses  the  same  credit underwriting procedures for commitments to
extend  credit  and  standby  letters  of credit as it does for on-balance-sheet
instruments.  The credit worthiness of each borrower is evaluated and the amount
of  collateral,  if  deemed  necessary,  is  based  on  the  credit  evaluation.
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  Company  is  not  involved  in off-balance-sheet contractual relationships,
other  than those disclosed in this report, that could result in liquidity needs
or  other  commitments  or  could  significantly  impact  earnings.

The  following  table  summarizes  the  Company's  off-balance-sheet  financial
instruments whose contract amounts represent credit risk as of December 31, 2001
and  2000.

                                        2001                 2000
                                     -----------        ------------
Commitments to extend credit         $ 1,534,123        $    449,117
Standby letters of credit                 43,000                   -


                                       31
<PAGE>
                              SUN BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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,
2001,  that  the  Company  and the Bank met all capital adequacy requirements to
which  they  are  subject.

As  of  December  31,  2001, 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,  2001  and  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, 2001
 Total capital (to risk-weighted assets)   $5,485,425   30.97%  $1,416,944   8.00%  $1,771,180  10.00%
 Tier 1 capital (to risk-weighted assets)   5,320,638   30.04%     708,472   4.00%   1,062,708   6.00%
 Tier 1 capital (to average assets)         5,320,638   21.85%     974,080   4.00%   1,217,600   5.00%

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>


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,  2001,  the Company had unused lines of credit to purchase
federal  funds  from unrelated banks totaling $4,241,000.  These lines of credit
are  available  on  a  one  to  thirty day basis for general corporate purposes.


                                       32
<PAGE>
                              SUN BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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.

Investment  Securities  - The fair values of securities available-for-sale equal
the  carrying  amount, which is the quoted market price. If quoted market prices
are  not  available, fair values are based on quoted market prices of comparable
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 approximated those in
effect  during the Bank'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 approximated those in effect during the
Bank's  operations  from  November  15,  2000  through  December  31,  2000.

Securities  Sold  Under  Agreetment  to  Repurchase  -  Secuitites sold under an
agreement  to  repurchase  are  for  a  term  of  one  day to seven days and the
carrying  amount  approximates  the  fair  value.

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 and standby letters of credit which are off-balance-sheet financial
instruments, approximates the fair value since the obligations are typically
based on current market rates.


                                       33
<PAGE>
                              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, 2001 and 2000 were as follows:

<TABLE>
<CAPTION>
                                                               2001                           2000
                                                  ------------------------------  -----------------------------
                                                    CARRYING     ESTIMATED FAIR    CARRYING     ESTIMATED FAIR
                                                     AMOUNT          VALUE          AMOUNT          VALUE
                                                  ------------  ----------------  -----------  ----------------
<S>                                               <C>           <C>               <C>          <C>
FINANCIAL ASSETS:
 Cash and due from banks                          $ 1,025,008   $     1,025,008   $  163,515   $       163,515
 Federal funds sold                                 1,304,000         1,304,000    6,010,000         6,010,000
 Securities available-for-sale                      4,384,229         4,384,229            -                 -
 Nonmarketable equity securities                      195,000           195,000      195,000           195,000
 Loans                                             16,238,315        16,549,003      905,147           905,147
 Allowance for loan losses                           (164,787)         (164,787)     (15,000)          (15,000)
 Accrued interest receivable                          122,234           122,234        4,115             4,115

FINANCIAL LIABILITIES:
 Demand deposit, interest-bearing transaction,
    and savings accounts                          $ 9,127,363   $     9,127,363   $1,553,269   $     1,553,269
 Certificates of deposit and other time deposits   10,072,751        10,300,665      386,074           386,074
 Borrowings                                           500,000           500,000            -                 -
 Accrued interest payable                             188,144           188,144        2,127             2,127


                                                   NOTIONAL      ESTIMATED FAIR    NOTIONAL     ESTIMATED FAIR
                                                    AMOUNT           VALUE          AMOUNT          VALUE
                                                  ------------  ----------------  -----------  ----------------
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS:
 Commitments to extend credit                     $ 1,534,123   $     1,534,123   $  449,117   $       449,117
 Standby letters of credit                             43,000            43,000            -                 -
</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  and  every  year  thereafter,  the  contract  shall be extended for an
additional  year  so  that the remaining term of the contract will always 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. No bonus was
accrued for 2001, since the Bank had a pretax loss for 2001.


                                       34
<PAGE>
                              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, 2001 AND 2000

<TABLE>
<CAPTION>
                                                2001        2000
                                             ----------  ----------
<S>                                          <C>         <C>
ASSETS
 Cash                                        $  108,181  $  109,216

 Investment in banking subsidiary             5,334,102   5,950,383
                                             ----------  ----------
 Total assets                                $5,442,283  $6,059,599
                                             ==========  ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
     Liabilities                             $        -  $        -

 Shareholders' equity                         5,442,283   6,059,599
                                             ----------  ----------
 Total liabilities and shareholders' equity  $5,442,283  $6,059,599
                                             ==========  ==========
</TABLE>

<TABLE>
<CAPTION>
                              STATEMENTS OF INCOME
                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
             AND FOR THE PERIOD AUGUST 3, 1999 TO DECEMBER 31, 1999

                                                          2001        2000        1999
                                                       ----------  ----------  ----------
<S>                                                    <C>         <C>         <C>
INCOME
    Interest                                           $       -   $       -   $     237
                                                       ----------  ----------  ----------
EXPENSES
    Miscellaneous                                          1,035           -           -
    Organizational                                             -      50,000     165,033
                                                       ----------  ----------  ----------
LOSS BEFORE INCOME TAXES AND EQUITY IN
  UNDISTRIBUTED LOSSES OF BANKING SUBSIDIARY              (1,035)    (50,000)   (164,796)

 Income tax expense                                            -           -           -

 Equity in undistributed losses of banking subsidiary   (629,744)   (504,821)          -
                                                       ----------  ----------  ----------
 NET LOSS                                              $(630,779)  $(554,821)  $(164,796)
                                                       ==========  ==========  ==========
</TABLE>


                                       35
<PAGE>
<TABLE>
<CAPTION>
                              SUN BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

                            STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
             AND FOR THE PERIOD AUGUST 3, 1999 TO DECEMBER 31, 1999

                                                                      2001         2000         1999
                                                                   ----------  ------------  ----------
<S>                                                                <C>         <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
 Net loss                                                          $(630,779)  $  (554,821)  $(164,796)
 Adjustments to reconcile net loss to net cash provided (used) by
  operating activities:
 Equity in undistributed losses of banking subsidiary                629,744       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                     (1,035)      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 increase (decrease) 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 (DECREASE) IN CASH                                          (1,035)       98,466      10,750

 CASH, BEGINNING OF PERIOD                                           109,216        10,750           -
                                                                   ----------  ------------  ----------

 CASH, ENDING OF PERIOD                                            $ 108,181   $   109,216   $  10,750
                                                                   ==========  ============  ==========
</TABLE>


                                       36
<PAGE>
<TABLE>
<CAPTION>
                                   SUN BANCSHARES, INC.

                                   BOARD OF DIRECTORS


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

Dalton B. Floyd, Jr.. . . . . . . . . . . . . . . .  Attorney, The Floyd Law Firm PC;
                                       Chief Executive Officer, Sun Bancshares, Inc.;
                                                 Chairman of the Board, SunBank, N.A.

Edsel J. ("Coupe") De Ville . . . . . . . . . . . . . . Aerial Photography Consultant

JOHN S. DIVINE, III . . . . . . . . . . . . . . . . . CO-OWNER, DIVINE HOLDINGS, LLC;
                                                   CO-OWNER, DIVINE RESTAURANTS, INC.

Jeanne Fourrier-Eggart. . . . . . . . . . . . . . . . . . . . . . . . . .Periodontist
                                              Owner, Jeanne L. Fourrier, DDS, MHS, PA

David E. Grabeman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dentist
                                                        Owner, David E. Grabeman, DDS

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

Paul John Hletko. . . . . . . . . . . . . . . . . . . . . . . . . . . .  Pediatrician
                                               Owner, Georgetown Pediatric Center, PA

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.;
                                                      Owner, Martin Amusements, Inc.;
                                                           Owner, Martin Rentals, Inc

Thomas O. Morris, Jr. . . . . . . . .Pharmacist, President, Hemingway Pharmacy, Inc.;
                                                        President, 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, Prosser Realty Company, Inc.;
                                                 Managing Partner, Wachesaw Golf, LLC

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


                                 SENIOR OFFICERS

              Thomas Bouchette                          Randy L. Carmon
   President and Chief Executive Officer         Senior Vice President and
                                                  Chief Financial Officer

              John L. Truelove                         Lynn Wood Wilson
        Senior Vice President and                     Vice President and
          Senior Lending Officer               Georgetown Area Executive Officer


                                       37
<PAGE>
                               SUN BANCSHARES, INC.

                                 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 May
13,  2002  at  4:30p.m.


CORPORATE OFFICE:                       GENERAL COUNSEL:
----------------                        ---------------

4367 Riverwood Drive                    The Floyd Law Firm P.C.
Post Office Box 1359                    Dalton B. Floyd, Jr.
Murrells Inlet, South Carolina 29576    15 Highway 17 South
Phone (843) 357-7007                    Surfside Beach, South Carolina 29587
Fax (843) 357-7008

STOCK TRANSFER DEPARTMENT:              INDEPENDENT AUDITORS:
-------------------------               --------------------

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

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  460  shareholders of record on December 31,
2001.


                                       38
<PAGE>