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

                                   FORM 10-KSB

[X]  Annual report  pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934 for the fiscal year
         ended December 31, 2002 or

[ ]  Transition report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

                        Commission File Number: 000-30273

                           CHESTATEE BANCSHARES, INC.
                           --------------------------
        (Exact name of small business issuer as specified in its Charter)

Georgia                                                               58-2535333
-------                                                               ----------
(State or other                                                    (IRS Employer
jurisdiction of                                                   Identification
incorporation or                                                         Number)
organization)

6639 Highway 53 East
Dawsonville, Georgia 30534                                        (706) 216-2265
--------------------------                                        --------------
(Address of principal                                        (Issuer's telephone
executive offices)                                                       number)

         Securities registered under Section 12(b) of the Exchange Act:


                                                                Name of Exchange
Title of each class:                                        on which registered:
--------------------                                        --------------------
None                                                                        None

          Securities registered under Section 12(g) of the Exchange Act


                                                                Name of Exchange
Title of each class:                                        on which registered:
--------------------                                        --------------------
Common Stock                                                         None
no par value per share

Indicate by mark whether the issuer (1) filed all reports to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes  X        No
                                                              ---

Indicate by mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.

The issuer's revenues for the fiscal year ended December 31, 2002 were:
$ 11,625,026

There were 2,925,690 outstanding shares of common stock, no par value per share,
as of December 31, 2002. The aggregate market value of the voting stock of the
Registrant held by non-affiliates of the Registrant, as of December 31, 2002,
was $20,062,850 based on the last sales price on such date.

<PAGE>
                                     PART I
                                     ------

ITEM 1.  BUSINESS
-----------------

History
-------

         Chestatee Bancshares, Inc., referred to as the Company, is a bank
holding company incorporated October 13, 1999 under the laws of the State of
Georgia. We were formed for the principal purpose of acquiring Chestatee State
Bank, a state banking institution chartered under the laws of the State of
Georgia on December 31, 1997. Pursuant to a Plan of Reorganization effective
March 31, 2000, we acquired all of the issued and outstanding shares of common
stock, $5.00 par value of the Bank. As a result of this transaction, the former
stockholders of the Bank became the stockholders of the Company, and the Bank
became a wholly-owned subsidiary of the Company.

         The Company formed Chestatee Financial Services, Inc. on November 13,
2000, which began doing business in the first quarter of 2001. We also formed
Chestatee Residential Mortgage on March 7, 2001, which began doing business in
the second quarter of 2001. Our assets consist primarily of our ownership of the
capital stock of the Bank, Chestatee Financial and Chestatee Mortgage. Unless
otherwise expressly stated, the information presented regarding the Company
includes the Company, the Bank, Chestatee Financial and Chestatee Mortgage on a
consolidated basis.

         The Company's principal place of business is located at 6639 Highway 53
East, Dawsonville, Dawson County, Georgia. The Bank has conducted its general
banking business since opening on May 15, 1998, from its main office located at
6639 Highway 53 East, Dawsonville, Dawson County, Georgia. The Bank has two
full-service branches: one located in downtown Dawsonville at 86 Highway 53
West, Dawsonville, Dawson County, Georgia; and a second located in Pickens
County, Georgia at 34 Holcombe Way, Marblehill, Georgia. The Bank has closed its
full service branch in the Ingle's Supermarket and the branch providing loan
production services only in Lumpkin County. Chestatee Financial and Chestatee
Mortgage conduct their respective businesses at 6639 Highway 53 East,
Dawsonville, Dawson County, Georgia. A third full-service branch will open April
2003 in Forsyth County, located at 2675 Freedom Parkway, Cumming, Georgia 30041.

Business
--------

         The assets of the Company consist primarily of our ownership of the
capital stock of the Bank, Chestatee Financial and Chestatee Mortgage. The
Company is authorized to engage in any activity permitted by law to a
corporation, subject to applicable federal and state regulatory restrictions on
the activities of bank holding companies. This structure provides us with
greater flexibility than permitted to the Bank, affording the Company
opportunities to expand and diversify our business activities. While management
has no present plans to engage in any other business activities, we may, from
time to time, study the feasibility of establishing or acquiring subsidiaries to
engage in other business activities to the extent permitted by law.

                                       2
<PAGE>
         The Bank operates a full-service banking business and engages in a
broad range of commercial banking activities, including accepting customary
types of demand and timed deposits, making individual, consumer, commercial, and
installment loans, money transfers, safe deposit services, and making
investments in U. S. government and municipal services to meet the banking needs
of individuals, small- to medium-sized businesses, and farmers. The Bank does
not offer trust services.

         The Bank performs banking services customary for a full service bank of
similar size and character. These services include the furnishing of personal
and commercial checking accounts, other demand and time deposit accounts, and
the extension of personal and commercial loans and lines of credit. The
principal business of the Bank is to attract and accept deposits from the public
and to make loans and other investments. The principal sources of funds for the
Bank's loans and investments are demand, time, savings, and other deposits,
including negotiable order of withdrawal or NOW accounts, installment payments
and prepayments on loans granted, sales to other lenders or institutions of
loans or participation in loans; fees paid by other lenders or institutions for
servicing loans sold by the Bank to it; and borrowings.

         The principal sources of income for the Bank are interest and fees
collected on loans, including fees received for servicing loans sold to other
lenders or institutions and, to a lesser extent, interest and dividends
collected on other investments. The principal expenses of the Bank include
interest paid on savings and other deposits, including NOW accounts, interest
paid on borrowings by the Bank, employee compensation, office expenses; and
other overhead expenses.

         The Bank is authorized to make both secured and unsecured commercial
and consumer loans to individuals, partnerships, corporations and other
entities. The Bank's lending business consists principally of making secured
real estate loans, including residential and commercial construction loans, and
primary and secondary mortgage loans for the acquisition or improvement of
personal residences. In addition, the Bank makes consumer loans to individuals
and commercial loans to small and medium-sized businesses and professional
concerns.

         Loans secured by real estate are the primary component of the Bank's
loan portfolios, constituting approximately $98 million, or 68%, of the Bank's
total loans at December 31, 2002. These loans consist of commercial real estate
loans, construction and development loans and residential real estate loans and
home equity loans. The Bank also makes loans for commercial purposes in various
lines of business. At December 31, 2002, the Bank held approximately $31
million, or 22% of the Bank's total loans, in commercial loans, excluding for
these purposes commercial loans secured by real estate included above. The Bank
makes a variety of loans to individuals for personal and household purposes,
including secured and unsecured installment and term loans, lines of credit, and
revolving lines of credit such as credit cards. At December 31, 2002, the Bank
held approximately $14 million in consumer loans, representing 10% of the Bank's
total loans.

         The Bank's loan approval policies provide for various levels of officer
lending authority. When the aggregate outstanding loans to a single borrower
exceeds that individual officer's lending authority, the loan request must be
considered and approved by an officer with a higher lending limit or by the
officers' loan committee. Individual officers' lending limits range

                                       3
<PAGE>
from $10,000 to $250,000, depending on security, seniority and the type of loan.
The president and chief lending officer have a joint lending limit of $500,000.
The directors' loan committee, which consists of the president and six outside
directors, has a lending limit of $1,000,000. Loans above $1,000,000 require
approval by the majority of the full Board of Directors.

         The Bank has a continuous loan review procedure involving multiple
officers of the Bank which is designed to promote early identification of credit
quality problems. All loan officers are charged with the responsibility of
rating their loans and reviewing those loans on a periodic basis, the frequency
of which increases as the quality of the loan deteriorates.

         The Bank offers a variety of deposit programs to individuals and to
small to medium-sized businesses and other organizations at interest rates
generally consistent with local market conditions. The Bank is authorized to
accept and pay interest on deposits from individuals, corporations, partnerships
and any other type of legal entity, including fiduciaries, such as private
trusts. Qualified deposits are insured by the FDIC in an amount up to $100,000.

         The following table sets forth the mix of depository accounts at the
Bank as a percentage of total deposits at December 31, 2002.

                                                    December 31, 2002

Non-interest bearing demand.........................           9%
Interest-bearing demand.............................          38%
Savings.............................................           1%
Time Deposits.......................................          29%
Certificates of Deposit of $100,000 or more.........          23%

         Total......................................       100.0%

The Bank is a member of a network of automated teller machines, which permits
the Bank's customers to perform certain transactions in numerous cities in
Georgia and throughout the country.

         The data processing work of the Bank is processed with the Intercept
Group f/k/a Provesa, Inc. of Thomson, Georgia. The Bank issues credit cards. The
Bank also offers its customers a variety of checking and savings accounts. The
installment loan department makes both direct consumer loans and also purchases
retail installment contracts from sellers of consumer goods.

         The Bank principally serves the residents of Dawsonville and Dawson
County. Dawson County has grown approximately 70% since the 1990 U.S. census
according to Census Bureau statistics. The number of residents in Dawson County
in 1990 was about 9,500 persons. The number of residents in Dawson County had
swelled to nearly 16,000 by 2000. Dawsonville and Dawson County have a diverse
commerce, including retail, manufacturing, service and farming sector economies.
Dawsonville also serves as the county seat for Dawson County, Georgia, with a
significant number of residents employed in government. Dawsonville, located
approximately 15 miles north of Cumming, Georgia and 22 miles west of
Gainesville, Georgia, is situated in the center of the development corridor
extending north from Atlanta between Interstate 75 and Interstate 85. The Bank

                                       4
<PAGE>
also serves the adjacent counties of Cherokee, Forsyth, Gilmer, Hall, Lumpkin
and Pickens.

         The Bank has a correspondent relationship with The Bankers Bank of
Atlanta, Georgia. The correspondent bank provides certain services to the Bank,
such as investing its excess funds, processing checks and other items, buying
and selling federal funds, handling money fund transfers and exchanges, shipping
coins and currency, providing security and safekeeping of funds and other
valuable items, handling loan participation and furnishing management investment
advice on the Bank's securities portfolio.

         Chestatee Financial renders securities brokerage and investment
advisory services, and offers insurance and annuity products. All services and
solicitations are provided by an independent contractor through affiliates of
Mass Mutual and the subsidiary engages no employees.

         Chestatee Mortgage provides mortgage lending and mortgage origination
services. The subsidiary has partnered with Guaranty First Mortgage, LLC and
Shelter Mortgage Corporation, furnishing services and making solicitations
through Guaranty Mortgage Services, LLC. All services are provided by
independent contractors engaged by Guaranty Mortgage Services. Guaranty Mortgage
Services obtains commitments from secondary mortgage purchasers, originates
mortgage loans on terms corresponding to such commitments and generates fee
income to supplement their interest income. No mortgage loans are held by the
Bank or by Chestatee Mortgage for resale nor are any loans held for mortgage
servicing.

         The Company may engage in any activity permitted by law to a
corporation, subject to applicable federal and state regulatory restrictions on
the activities of bank holding companies. While we have no present plans to
engage in any other business activities, management may, from time to time,
study the feasibility of establishing or acquiring subsidiaries to engage in
other business activities to the extent permitted by law.

Competition
-----------

         The banking business is highly competitive. The Bank competes as
financial intermediaries with other commercial banks, thrift institutions,
credit unions, and money market mutual funds operating in Dawson County, as well
as in the adjacent counties of Cherokee, Forsyth, Gilmer, Hall, Lumpkin and
Pickens. Many of the Bank's competitors have significantly greater resources and
higher lending limits (by virtue of their greater capitalization). Credit unions
and money market mutual funds with which the Bank competes may have competitive
advantages as a result of their being subject to different, and possibly less
stringent, regulatory requirements.

         As of December 31, 2002, three non-locally owned banks had offices in
Dawson County and one locally owned banks had offices in Dawson County. Bank of
America, N.A., a bank headquartered in Charlotte, North Carolina, operates a
branch office in Dawson County. BB&T operates one office in Dawson County.
United Community Bank maintains a main office and two branch offices in Dawson
County. While there are no other financial institutions with

                                       5
<PAGE>
offices in Dawson County, numerous financial institutions within the Atlanta
metropolitan area market their services to our residents. In addition to these
banks, there are several finance companies, credit union offices, and other
non-traditional providers of service that compete in the Bank's market. Many
local businesses and individuals have deposits outside the primary service areas
of the Bank with these financial institutions. Georgia law allows banks in
Georgia to establish newly-formed branch banks in areas in which the Bank
serves, which branches, if established, also would compete with the Bank.

Employees
---------

         Except for the officers of the Company, who are also officers of the
Bank, the Company does not have any employees. As of December 31, 2002, the Bank
had 60 full-time and 8 part-time employees. Chestatee Financial and Chestatee
Mortgage had no full-time or part-time employees, with all services rendered by
independent contractors. In our opinion, the Company and the Bank each enjoy an
excellent relationship with its employees. We are not a party to any collective
bargaining agreement.

Selected Financial Information

         A history of the Company's financial position for the period ended
December 31, 2002, is as follows (audited, dollar amounts in thousands, except
for per share information):

Total Assets.....................................................$   175,413
Total Deposits...................................................$   143,721
Total Shareholders Equity........................................$    20,219
Net Income.......................................................$       530
Number of Issued and Outstanding Shares..........................  2,925,690
Book Value Per Share.............................................$      6.91
Net Income Per Share.............................................$       .19

A history of the Company's financial position for the year ended December 31,
2001, is as follows (audited, dollar amounts in thousands, except for per share
information):

Total Assets.....................................................$   140,135
Total Deposits...................................................$   113,622
Total Shareholders Equity........................................$    13,183
Net Loss.........................................................$      (94)
Number of Issued and Outstanding Shares..........................  2,275,000
Book Value Per Share.............................................$      5.79
Net Loss Per Share...............................................$    (0.05)

                                       6
<PAGE>
Monetary Policies
-----------------

         The results of operations of the Company and the Bank are significantly
affected by the credit policies of monetary authorities, particularly the Board
of Governors of the Federal Reserve System. The instruments of monetary policy
employed by the Federal Reserve include open market operations in U.S.
government securities, changes in discount rates on member bank borrowings, and
changes in reserve requirements against bank deposits. In view of changing
conditions in the national economy and in the money markets, as well as the
effect of action by monetary and fiscal authorities, including the Federal
Reserve System, no prediction can be made as to possible future changes in
interest rates, deposit levels, loan demand, or the business and earnings of the
Bank.

Supervision and Regulation
--------------------------

         The Company and the Bank are subject to state and federal banking laws
and regulations which impose specific requirements or restrictions and provide
for general regulatory oversight over virtually all aspects of operations. These
laws and regulations generally are intended to protect depositors, not
shareholders. This discussion is only a summary of various statutory and
regulatory provisions. This summary is qualified by reference to the particular
statutory and regulatory provisions. Any change in applicable laws or
regulations may have a material effect on our business and prospects. Our
operations may be affected by legislative changes and the policies of various
regulatory authorities. We are unable to predict the nature or the extent of the
effect on our business and earnings that fiscal or monetary policies, economic
control or new federal or state legislation may have in the future.

         The Company is a bank holding company within the meaning of the Bank
Holding Company Act of 1956 and is registered with and subject to the regulation
of the Federal Reserve. As a bank holding company, the Company is required to
file with the Federal Reserve annual reports and other reports and information
as may be required under the Bank Holding Company Act. The Federal Reserve may
conduct examinations of the Company and the Bank to determine whether we are in
compliance with the regulations promulgated under the Bank Holding Company Act.

         The Bank Holding Company Act requires a bank holding company to obtain
prior approval of the Federal Reserve to acquire the ownership or control of
more than 5% of any class of voting stock of any bank not already controlled by
it, for it or any subsidiary (other than a bank) to acquire all or substantially
all of the assets of a bank, and to merge or consolidate with any other bank
holding company.

         The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
facilitates branching and permits the establishment of agency relationships
across state lines. The Interstate Banking Act also permits bank holding
companies to acquire banks in any state without regard to whether the
transaction is prohibited under the laws of such state, subject to certain state
provisions, including minimum age requirements of banks that are the target of
the acquisition. The minimum age of local banks subject to interstate
acquisition is limited to a maximum of five years.

                                       7
<PAGE>
         Bank holding companies generally are prohibited under the Bank Holding
Company Act of 1956 from engaging in non-banking activities or from acquiring
direct or indirect control of any company engaged in non-banking activities.
However, the Federal Reserve may permit bank holding companies to engage in
certain types of non-banking activities determined by the Federal Reserve to be
closely related to banking or managing or controlling banks. Activities
determined by the Federal Reserve to fall under this category include making or
servicing loans and certain leases, providing certain data processing services,
acting as a fiduciary or investment or financial advisor, providing discount
brokerage services, underwriting bank eligible securities, and making
investments designed to promote welfare.

         Federal law imposes certain limitations on extensions of credit and
other transactions between banks that are members of the Federal Reserve System
and other affiliates (which includes any holding company of which a bank is a
subsidiary and any other non-bank subsidiary of that holding company). Banks
that are not members of the Federal Reserve System also are subject to these
limitations. Further, federal law prohibits a bank holding company and its
subsidiaries from engaging in certain tie-in arrangements in connection with any
extension of credit, lease or sale of property, or the furnishing of services.

         Under Federal Reserve policy, a bank holding company is expected to act
as a source of financial strength to its bank subsidiaries and to commit
resources to support these subsidiaries. This support may be required at times
when, absent such policy, the bank holding company might not otherwise provide
such support. Under these provisions, a bank holding company may be required to
loan money to its subsidiary banks in the form of capital notes or other
instruments which qualify for capital under regulatory rules. Any loans by the
bank holding company to subsidiary banks are likely to be unsecured and
subordinate to the bank's depositors and will be senior to the securities
offered in this prospectus.

         In November 1999, legislation was enacted removing barriers to
affiliations among banks and securities firms, insurance companies and other
financial service providers first established by the 1933 Glass-Steagall Act.
The Gramm-Leach-Bliley Act of 1999 includes a number of provisions intended to
modernize and to increase competition in the American financial services
industry, including authority for bank holding companies to engage in a wider
range of non-banking activities. A bank holding company that elects to become a
financial holding company may engage in any activity that the Federal Reserve,
in consultation with the Secretary of the Treasury, determines by regulation or
order is (i) financial in nature, (ii) incidental to any such financial
activity, or (iii) complementary to any such financial activity and does not
pose a substantial risk to the safety or soundness of depository institutions or
the financial system generally. The Gramm-Leach-Bliley Act specifies certain
activities that are deemed to be financial in nature, including lending,
exchanging, transferring, investing for others, or safeguarding money or
securities; underwriting and selling insurance; providing financial, investment,
or economic advisory services; underwriting, dealing in or making a market in,
securities; and any activity currently permitted for bank holding companies by
the Federal Reserve. A bank holding company may elect to be treated as a
financial holding company only if all depository institution subsidiaries of the
holding company are and continue to be well-capitalized and well-managed and
have at least a satisfactory rating under the Community Reinvestment Act.
National banks and state banks with requisite investment authority under

                                       8
<PAGE>
applicable state law are also authorized by the Gramm-Leach-Bliley Act to
engage, through "financial subsidiaries", in any activity that is permissible
for a financial holding company (as described above) and any activity that the
Secretary of the Treasury, in consultation with the Federal Reserve, determines
is financial in nature or incidental to any such financial activity, except (i)
insurance underwriting, (ii) real estate development or real estate investment
activities (unless otherwise permitted by law), (iii) insurance company
portfolio investments; and (iv) merchant banking. The authority of a bank to
invest in a financial subsidiary is subject to a number of conditions,
including, among other things, requirements that the bank must be well-managed
and well-capitalized (after deducting from capital the bank's outstanding
investments in financial subsidiaries). The Gramm-Leach-Bliley Act also adopts a
number of consumer protections, including provisions intended to protect privacy
of bank customers' financial information and provisions requiring disclosure of
ATM fees imposed by banks on customers of other banks. Of course, as a result of
this new law, the number and type of entities competing with us in our markets
could increase.

         The Company also is subject to regulation as a bank holding company
under the Georgia Financial Institutions Code, which requires registration and
filing of periodic information with the Georgia Department of Banking and
Finance. Registration with the Georgia Department includes information relating
to the financial condition, operations, management and inter-company
relationships of the Company and the Bank. The Georgia Department also may
require other information or make examinations as is necessary to keep itself
informed as to whether the Company is in compliance with the provisions of
Georgia law and related regulations and orders.

         Under the provisions of the Georgia Financial Institutions Code, it is
unlawful without the prior approval of the Georgia Department for any bank
holding company to acquire ownership or control of more than 5% of the voting
shares of a bank, for any bank holding company or a subsidiary thereof (other
than a bank) to acquire all or substantially all of the assets of a bank, or for
any bank holding company to merge or consolidate with any other bank holding
company. It is also unlawful under the Georgia Financial Institutions Code for
any bank holding company to acquire direct or indirect ownership or control of
more than 5% of the voting shares of any presently operating bank unless the
bank has been in existence and continuously operating or incorporated as a bank
for a period of five years or more prior to the date of application to the
Georgia Department for approval of such acquisition. In addition, in any
acquisition by an existing bank holding company, the initial banking subsidiary
of the bank holding company must have been incorporated for not less than two
years before the holding company can acquire another bank.

         The Bank is incorporated under the laws of the State of Georgia and
subject to examination by the Georgia Department. The Georgia Department
regulates all areas of the Bank's commercial banking operations, including
reserves, loans, mergers, consolidations, reorganizations, issuance of
securities, payment of dividends, interest rates, establishment of branches, and
other aspects of its operations.

         Additionally, the Bank is insured and regulated by the Federal Deposit
Insurance Corporation. The major functions of the FDIC with respect to insured
banks include paying off depositors to the extent provided by law if a bank is
closed without making adequate provisions to pay the claims of depositors,
acting as the receiver of state banks placed in receivership when

                                       9
<PAGE>
appointed receiver by state authorities, and preventing the continuance or
development of unsound and unsafe banking practices. In addition, the FDIC is
authorized to examine insured banks that are not members of the Federal Reserve
System, such as the Bank, to determine their condition for insurance purposes.
The FDIC also is authorized to approve mergers, consolidations and assumption of
deposit liability transactions between insured banks and non-insured banks or
institutions, and to prevent capital or surplus diminution in these transactions
where the resulting, continued, or assumed bank is an insured non-member state
bank. The FDIC closely examines non-member banks for compliance with federal
statutes such as the Reinvestment Act of 1977 and the Truth-in-Lending Act.

         Federal bank regulatory authorities have adopted risk-based capital
guidelines for banks and bank holding companies that are designed to make
regulatory capital requirements more sensitive to differences in risk profiles
among banks and bank holding companies, account for off-balance sheet exposure,
and minimize disincentives for holding liquid assets. The resulting-capital
ratios represent qualifying capital as a percentage of total risk-weighted
assets and off-balance sheet items. The guidelines are minimums, and the federal
regulators have noted that banks and bank holding companies contemplating
significant expansion programs should not allow expansion to diminish their
capital ratios and should maintain ratios well in excess of the minimums.

         The Federal Deposit Insurance Corporation Improvement Act of 1991 (or
FDICIA) established a capital-based regulatory plan designed to promote early
intervention for troubled banks and requires the FDIC to choose the least
expensive resolution of bank failures. The capital-based regulatory framework
contains five categories of compliance with regulatory capital requirements,
including "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" and "critically undercapitalized." To qualify
as a "well capitalized" institution, a bank must have a leverage ratio of no
less than 5%, a Tier I risk-based ratio of no less than 6%, and a total
risk-based capital ratio of no less than 10%. The bank also must not be under
any order or directive from the appropriate regulatory agency to meet and
maintain a specific capital level. The current guidelines require all bank
holding companies and federally-regulated banks to maintain a minimum risk-based
Total Capital ratio equal to 8%, of which at least 4% must be Tier I capital.
The degree of regulatory scrutiny of a financial institution will increase, and
the permissible activities of the institution will decrease, as it moves
downward through the capital categories. Bank holding companies controlling
financial institutions can be called upon to boost the institutions' capital and
to partially guarantee the institutions' performance under their capital
restoration plans. Tier I capital includes stockholders' equity, qualifying
perpetual preferred stock and minority interests in equity accounts of
consolidated subsidiaries, but excludes goodwill and most other intangible
assets and excludes the allowance for loan and lease losses. Tier 2 capital
includes the excess of any preferred stock not included in Tier 1 capital,
mandatory convertible securities, hybrid capital instruments, subordinated debt
and intermediate-term preferred stock and general reserves for loan and lease
losses up to 1.25% of risk-weighted assets. Failure to meet capital guidelines
could subject a bank to a variety of enforcement remedies, including the
termination of deposit insurance by the FDIC, and to certain restrictions on its
business.

                                       10
<PAGE>
         FDICIA was enacted in large measure to improve the supervision and
examination of insured depository institutions in an effort to reduce the number
of bank failures and the resulting demands on the deposit insurance system.
Under FDICIA, regulators must take prompt corrective action against depository
institutions that do not meet minimum capital requirements. FDICIA and the
related regulations establish five capital categories as shown in the following
table:

                                              TOTAL RISK-                 TIER
                  CLASSIFICATION              BASED CAPITAL               BASED

Well Capitalized (1)                             10%                        6%
Adequately Capitalized (1)                        8%                     4%(2)
Undercapitalized (3)                             <8%                       <4%
Significantly Undercapitalized (3)               <6%                       <3%
Critically Undercapitalized (3)                    -                         -

(1)      An institution must meet all three minimums.

(2)      3% for composite I-rated institutions, subject to appropriate federal
         banking agency guidelines. (3) An institution is classified as
         "undercapitalized" if it is below the specified capital level for any
         of the three capital measures.

A depository institution may be deemed to be in a capitalization category that
is lower than is indicated by its actual capital position if it receives a less
than satisfactory examination rating in any one of four categories. As a
depository institution moves downward through the capitalization categories, the
degree of regulatory scrutiny will increase and the permitted activities of the
institution will decrease. Action may be taken by a depository institution's
primary federal regulator against an institution that falls into one of the
three "undercapitalized" categories, including the requirement of filing a
capital plan with the institution's primary federal regulator, prohibition on
the payment of dividends and management fees, restrictions on executive
compensation, and increased supervisory monitoring. Other restrictions may be
imposed on the institution either by its primary federal regulator or by the
FDIC, including requirements to raise additional capital, sell assets, or sell
the institution.

         FDICIA also requires that all depository institutions with assets in
excess of $150 million prepare and submit to the FDIC and appropriate federal
and state banking regulators audited annual financial statements. The FDIC has
provided by regulation that these provisions of the FDICIA do not apply to
depository institutions with assets of less than $500 million. These
institutions must file reports containing a statement by management of its
responsibilities and by the depository institution's independent public
accountant attesting to the accuracy of management's annual assessment of its
financial reporting, internal controls and regulatory compliance. The
institution also must establish an audit committee composed of members of the
board of directors who are independent of management. An enactment of the FDICIA
also has resulted in the promulgation of regulations by regulatory agencies
which will tend to restrict to some degree the real estate lending practices of
financial institutions.

                                       11
<PAGE>
         The Federal Reserve also has implemented a leverage ratio, which is
Tier I capital as a percentage of average total assets less intangible assets,
to be used as a supplement to the risk-based guidelines. The principal objective
of the leverage ratio is to place a constraint on the maximum degree to which a
bank holding company may leverage its equity capital base. The Federal Reserve
has established a minimum 3% leverage ratio of Tier I capital to total assets
for the most highly rated bank holding companies and insured banks. All other
bank holding companies and insured banks will be required to maintain a leverage
ratio of 3% plus an additional cushion of at least 100 to 200 basis points. The
tangible Tier I Leverage ratio is the ratio of a banking organization's Tier I
capital, less all intangibles, to total assets, less all intangibles.

         In addition to the capital standards imposed by federal banking
regulators, the Georgia Department of Banking and Finance has the authority to
impose a primary capital ratio as a condition to the approval of bank's charter
or acquisition. This standard, which may exceed the FDIC capital standards, is
calculated as the ratio of total equity to total assets, each as adjusted for
unrealized gains and losses on securities and allowance for loan losses. This
heightened requirement may be imposed at any time.

         At December 31, 2002, the Company is considered to be adequately
capitalized and the Bank is considered to be well-capitalized according to the
total risk-based regulatory capital requirement. We believe the Bank will remain
"well-capitalized" for the foreseeable future. However, rapid growth, poor loan
portfolio performance or poor earnings performance, or a combination of these
factors, could change our capital position in a short period of time, making an
additional capital infusion necessary.

         The deposits of the Bank currently are insured to a maximum of $100,000
per depositor, subject to aggregation rules. The FDIC establishes rates for the
payment of premiums by federally insured banks and thrifts for deposit
insurance. Since 1993, insured depository institutions like the Bank have paid
for deposit insurance under a risk-based premium system. Insurance of deposits
may be terminated by the FDIC upon a finding that the institution has engaged in
unsafe and unsound practices, is in an unsafe or unsound condition to continue
operations, or has violated any applicable law, regulation, rule, order, or
condition imposed by the FDIC.

         The Riegle Community Development and Regulatory Improvement Act of 1994
(or RCDRIA) promotes economic revitalization and development to "investment
areas." It established a Development Financial Institutions Fund to achieve
these objectives. The fund is authorized to provide financial assistance through
a variety of mechanisms, including equity investments, grants, loans, credit
union shares and deposits. The amount of assistance any development financial
institution and its subsidiaries and affiliates may receive is generally limited
to $5 million. A qualifying institution may receive an additional $3.75 million
for the purpose of serving an investment area in another state.

                                       12
<PAGE>
         The RCDRIA provides certain regulatory relief, requiring each federal
agency to streamline and modify its regulations and policies, remove
inconsistencies and eliminate outmoded and duplicative requirements. The RCDRIA
directs the federal agencies to coordinate examinations among affiliate banks,
coordinate examinations with other federal banking agencies, and work to
coordinate with state banking agencies. The federal banking agencies also are
directed to work jointly in developing a system for banks and savings
associations to file reports and statements electronically and to adopt a single
form for filing core information in reports and statements.

         The federal Interstate Banking Act permits, among other things, bank
holding companies to acquire banks in any state. It also permits bank holding
companies to establish new branches across state lines if the individual states
into which a potential entrant proposes to branch specifically pass legislation
to "opt-in." Under the Interstate Banking Act, a bank could merge, beginning on
June 1, 1997, with a bank in another state if the transaction did not involve a
bank in a home state which had enacted a law after the date of enactment of the
Interstate Banking Act and before June 1, 1997 that applied equally to all
out-of-state banks and expressly prohibited interstate merger transactions.
States also were allowed to permit merger transactions before June 1, 1997.
Georgia elected to allow merger transactions beginning June 1, 1997. The
Interstate Banking Act authorizes interstate mergers involving the acquisition
of a branch of a bank without the acquisition of the bank only as state law
permits an out-of-state bank to acquire a branch without acquiring the bank.
Georgia has not authorized these transactions. State minimum age laws for banks
to be acquired will be preserved unless state law provides for a minimum age
period of more than five years. After consummation of any interstate merger
transaction, a resulting bank may establish or operate additional branches at
any location where any bank involved in the transaction could have established
or operated a branch under applicable federal or state law.

         The Board of Governors of the Federal Reserve System is authorized to
approve the acquisition by a well capitalized and adequately managed bank
holding company of a bank that is located in another state without regard to
whether the acquisition is prohibited under the laws of any state. Again, state
minimum age laws for banks to be acquired will be preserved unless the state law
provides for a minimum age period of more than five years. The Federal Reserve
may not approve an interstate acquisition which would result in the acquirer
controlling more than 10% of the total amount of deposits of insured depository
institutions in the United States with 30% or more of the deposits in the home
state of the target bank. A state may waive the 30% limit based on criteria that
does not discriminate against out of state institutions. The limitations do not
apply to the initial entry into a state by a bank holding company unless the
state has a deposit concentration cap that applies on a nondiscriminatory basis
to in-state or out-of-state bank holding companies making an initial
acquisition. Anti-trust laws are not affected by the Interstate Banking Act.

         The Interstate Banking Act now provides that banks may establish
branches across state lines upon approval of the appropriate federal regulator
if the state "opts-in" by enacting legislation that expressly permits interstate
branching. The establishment of the initial branch in a host state which permits
de novo interstate branching is subject to the same requirements which apply to
the initial acquisition of a bank in a host state, other than the deposit

                                       13
<PAGE>
concentration limits, since the bank would not control any deposits in the host
state at the time of entry. Once a new branch has been established, the bank may
establish and acquire additional branches at any location in the host state in
the same manner as any bank in the host state could have established or acquired
additional branches under applicable federal or state law.

         In 1994, the Georgia General Assembly adopted the Georgia Interstate
Banking Act. The act permits bank holding companies located in any state outside
of Georgia to acquire Georgia banks, or to acquire bank holding companies owning
Georgia banks. The board of directors of a Georgia bank or bank holding company
may adopt a resolution to exempt its bank or bank holding company from
acquisition under this act.

         The Georgia General Assembly also has enacted the Georgia Intrastate
Banking Act altering the public policy of the state regarding intrastate branch
banking. The act allows a bank to establish de novo branch banks on a limited
basis beginning July 1, 1996. After June 30, 1998, any Georgia bank is
permitted, subject to certain restrictions, to establish new or additional
branch banks in counties in Georgia in which the bank is not currently
operating.

         The Community Reinvestment Act (or CRA) requires that, in connection
with examinations of financial institutions within their respective
jurisdictions, the Federal Reserve, the FDIC or any other appropriate federal
agency, shall evaluate the record of each financial institution in meeting the
credit needs of its local, including low and moderate income neighborhoods.
These factors also are considered in evaluating mergers, acquisitions and
applications to open a branch or facility. Failure to adequately meet these
criteria could pose additional requirements and limitations on the bank. We were
examined for CRA compliance in August 1999 and received a CRA rating of
"outstanding."

         Congress and various federal agencies (including, in addition to the
bank regulatory agencies, the Housing and Urban Development Agency, the Federal
Trade Commission and the Department of Justice) (collectively called the Federal
Agencies) responsible for implementing the nation's fair lending laws have been
increasingly concerned that prospective home buyers and other borrowers are
experiencing discrimination in their efforts to obtain loans. In recent years,
the Department of Justice has filed suit against financial institutions, which
it determined had discriminated, seeking fines and restitution for borrowers who
allegedly suffered from discriminatory practices. Most, if not all, of these
suits have been settled (some for substantial sums) without a full adjudication
on the merits.

         From time to time, various bills are introduced in the United States
Congress with respect to the regulation of financial institutions. Some of these
proposals, if adopted, could change significantly the regulation of banks and
the financial services industry. We cannot predict whether any of these
proposals will be adopted or, if adopted, what effect these proposals would
have.

                                       14
<PAGE>
         The Company's earnings are affected by domestic economic conditions and
the monetary and fiscal policies of the United States government and its
agencies. The Federal Reserve's monetary policies have had, and are likely to
continue to have, an important impact on the operating results of commercial
banks through its power to implement national monetary policy in order to curb
inflation or combat a recession. The monetary policies of the Federal Reserve
have major effects upon the levels of bank loans, investments and deposits
through its open market operations in United States government securities and
through its regulation of the discount rate on borrowings of member banks and
the reserve requirements against member bank deposits. It is not possible to
predict the nature or impact of future changes in monetary and fiscal policies.


ITEM 2.  DESCRIPTION OF THE PROPERTY
------------------------------------

         The Company's principal executive offices are located at 6639 Highway
53 East, Dawsonville, Georgia 30534. The property, owned by the Bank, consists
of approximately 11,000 square feet and houses offices, operations and storage.
The Company does not lease any separate office space from the Bank. Management
believes the physical facilities are suitable for the Company's current
operations.

         The Bank conducts its operations from its main office location at 6639
Highway 53 East, Dawsonville, Georgia 30534 and from two branches: its downtown
branch located at 86 Highway 53 West, Dawsonville, Dawson County, Georgia 30534;
and its Marblehill branch, located at 34 Holcomb Way, Marblehill, Pickens
County, Georgia 30148.

         The Bank's office consists of its main building with 4 drive-up windows
and an automated teller machine ("ATM") and an adjacent parking lot, situated on
1.1 acres of land. The downtown branch has been in continuous operation since it
opened in October 2000. The downtown branch consists of approximately 2,500
square feet, with an ATM and two drive-up windows. The Bank's branch in Pickens
County consists of approximately 3,300 square feet, with 2 drive-up windows and
an ATM, with an adjacent parking lot, situated on 1.08 acres. The building and
land of the new branch is owned by the Bank and opened in May 2001. The Bank
also leases 5,600 square feet of office space adjacent to the Bank for
administrative offices. The monthly lease rental is $3,375, with the lease
expiring in 2003. The space is owned by CSB Partners, LLP, an entity owned by
all of our directors.

         Chestatee Financial and Chestatee Mortgage operate infrequently out of
the main offices of the Bank at 6639 Highway 53 East, Dawsonville, Georgia
30534. The independent contractors engaged by each render services independently
from limited undesignated office space. Consequently, no lease exists and no
rent is charged at present.

                                       15
<PAGE>
ITEM 3.  LEGAL PROCEEDINGS
--------------------------

         The Bank brought an action on March 5, 2001 in the Superior Court for
Dawson County, State of Georgia, against Terri and Woody Reece to recover
amounts due following default on a promissory note. The Bank seeks to recover
the balance due of $66,205, plus interest. The Reeces, husband and wife, filed
an answer on April 9, 2001 denying owing any money to the Bank. In addition, the
Reeces filed a counterclaim against the Bank for deliberate and intentional
infliction of emotional distress for a sum not less than $1 million and for
unstipulated punitive damages. The Bank strenuously denies any wrongdoing and
intends to pursue its claims against the Reeces and defend any allegation of
wrongdoing by it. The suit is presently pending. A motion for summary judgment
seeking dismissal of the counterclaim was granted.

         Management is not aware of any other material pending legal proceedings
to which the Company, the Bank, Chestatee Financial or Chestatee Mortgage are a
party or to which any of their property is subject, other than ordinary routine
legal proceedings incidental to our business.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------

         The Company did not submit any matter during the fourth quarter of the
fiscal year ending December 31, 2002 to a vote of security holders through the
solicitation of proxies or otherwise.


                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
-----------------------------------------------------------------

         The Company is authorized by its articles of incorporation to issue
10,000,000 shares of no par value voting common stock and up to 10,000,000
shares of no par value non-voting common stock. There is no established trading
market for our common stock and we have no market maker. We have no reason to
expect an established trading market will develop in our common shares.

         Our common stock is ordinarily traded infrequently in private
transactions and no substantial reliable information is typically available as
to trades of the common stock or as to the prices at which common stock has
traded. We have, however, engaged in three separate offerings of our no par
value common stock at a price of $10 per share since October 2001: 600,000
shares sold as of January 15, 2002 pursuant to a registration statement that
went effective December 12, 2001; another 350,000 shares sold as of May 21, 2002
pursuant to a registration statement that went effective February 7, 2002; and
finally 250,000 shares sold as of March 24, 2003 pursuant to a registration
statement that went effective as of October 25, 2002. Of the 250,000 shares,
75,690 shares of common stock were sold as of December 31, 2002.

                                       16
<PAGE>
         The Company is allowed to declare and pay dividends in authorized but
unissued shares of our stock, provided there is transferred to capital stock an
amount equal to the value of the shares distributed and provided further that
after payment of the dividend we continue to maintain required levels of paid-in
capital and appropriated retained earnings. In the year ended December 31, 2000,
we effected a two-for-one share split of its common stock in the form of a
common stock dividend to shareholders of record as of the close of business on
October 31, 2000. As a result of the stock split, the number of shares of common
stock issued and outstanding increased from 950,000 to 1,900,000 and the market
value per share of the common stock, based upon the limited trading information
available to management, dropped from $16.00 per share to approximately $8.00
per share. We did not pay a stock dividend to our shareholders in 2001 or 2002.

         The Company is not generally made aware of the number of shares of our
common stock traded or the prices at which such shares have traded by our
shareholders. Management has reviewed the limited information available as to
the ranges at which our common stock has been sold by our shareholders. The
following table sets forth the estimated price range for sales of our common
stock for each quarter of the last two fiscal years, after adjustment to reflect
the two-for-one share split of our common stock, based on limited available
information.

------------------   ----------------   ------------------   -----------------
       YEAR          NUMBER OF SHARES   HIGH SELLING PRICE   LOW SELLING PRICE
                         TRADED(1)
------------------   ----------------   ------------------   -----------------
2001
    First Quarter           N/A                N/A                 N/A
    Second Quarter         2,000              $10.00             $10.00
    Third Quarter         11,070              $10.00              $8.00
    Fourth Quarter        375,000             $10.00             $10.00

2002
    First Quarter         225,000             $10.00             $10.00
    Second Quarter        350,000             $10.00             $10.00
    Third Quarter           N/A                N/A                 N/A
    Fourth Quarter        75,690              $10.00             $10.00

(1) According to information available to us, the table includes trades between
family members with respect to 400 shares during the year ended December 31,
2001. The data regarding the common stock is provided for information purposes
only and should not be viewed as indicative of the actual or market value of the
common stock.

As of December 31, 2002, the Company had 2,925,690 shares of its voting common
stock held by approximately 1,100 shareholders of record.

         The Company is a legal entity separate and distinct from the Bank. The
principal source of cash flow for the Company is dividends from the Bank,
Chestatee Mortgage and Chestatee Financial. There are various statutory and
regulatory limitations on the payment of dividends by the Bank, as well as by
the Company to its shareholders. The payment of dividends by the Company and the
Bank may be affected or limited by regulatory requirements and policies, such as
the maintenance of adequate capital. Presently, the Company does not pay
dividends. If, in the opinion of the applicable regulatory authority, a bank
under its jurisdiction is engaged in or is about to engage in an unsafe or
unsound practice (which could include the payment of dividends

                                       17
<PAGE>
depending on the institution's financial condition), such authority may require,
after notice and hearing, that the bank cease and desist from such practice. The
FDIC issued a policy statement that provides that insured banks generally should
only pay dividends out of current operating earnings. The Federal Reserve has
issued a policy statement to the same effect for bank holding companies. In
addition, all insured depository institutions are subject to the capital-based
limitations required by the FDICIA.

         Under Georgia law, the Bank must obtain approval of the Georgia
Department before they may pay cash dividends out of retained earnings if the
total classified assets at the most recent examination of such bank exceed 80%
of the equity capital, the aggregate amount of dividends declared or anticipated
to be declared in the calendar year exceeds 50% of the net profits, after taxes
but before dividends, for the previous calendar year, or the ratio of equity
capital to adjusted assets is less than 6%. As discussed above, additional
capital requirements imposed by the Georgia Department may limit the Bank's
ability to pay dividends to the Company.

         The Company has not paid any cash dividends to its shareholders to
date. No assurance can be given that the Company will declare any dividends in
the future, or if declared, what amounts would be declared or whether such
dividends would continue.

                                       18
<PAGE>
ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
------------------------------------------------------------------

         The following is a discussion of our financial condition and the
financial condition of our bank subsidiary, the Bank, our mortgage subsidiary,
Chestatee Mortgage, and our financial services subsidiary, Chestatee Financial,
at December 31, 2002 and 2001 and the results of operations for the years then
ended. The purpose of this discussion is to focus on information about our
financial condition and results of operations that are not otherwise apparent
from our audited financial statements. Reference should be made to those
statements and the selected financial data presented elsewhere in this report
for an understanding of the following discussion and analysis.

Forward-Looking Statements
--------------------------

         We may from time to time make written or oral forward-looking
statements, including statements contained in our filings with the Securities
and Exchange Commission and reports to stockholders. Statements made in the
Annual Report, other than those concerning historical information, should be
considered forward-looking and subject to various risks and uncertainties.
Forward-looking statements are made based upon management's belief as well as
assumptions made by, and information currently available to, management pursuant
to "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. Our actual results may differ materially from the results anticipated in
forward-looking statements due to a variety of factors, including governmental
monetary and fiscal policies, deposit levels, loan demand, loan collateral
values, securities portfolio values, interest rate risk management, the effects
of competition in the banking business from other commercial banks, thrifts,
mortgage banking firms, consumer finance companies, credit unions, securities
brokerage firms, insurance companies, money market funds and other financial
institutions operating in our market area and elsewhere, including institutions
operating through the Internet, changes in governmental regulation relating to
the banking industry, including regulations relating to branching and
acquisitions, failure of assumptions underlying the establishment of reserves
for loan losses, including the value of collateral underlying delinquent loans
and other factors. We caution that these factors are not exclusive. We do not
undertake to update any forward-looking statement that may be made from time to
time by us, or on our behalf.

Critical Accounting Policies
----------------------------

         We have adopted various accounting policies which govern the
application of accounting principles generally accepted in the United States in
the preparation of our financial statements. Our significant accounting policies
are described in the footnotes to the consolidated financial statements at
December 31, 2002.

         Certain accounting policies involve significant judgments and
assumptions by us which have a material impact on the carrying value of certain
assets and liabilities. We consider these accounting policies to be critical
accounting policies. The judgments and assumptions we use are based on
historical experience and other factors, which we believe to be reasonable under
the circumstances. Because of the nature of the judgments and assumptions we

                                       19
<PAGE>
make, actual results could differ from these judgments and estimates which could
have a material impact on our carrying values of assets and liabilities and our
results of operations.

         We believe the allowance for loan losses is a critical accounting
policy that requires the most significant judgments and estimates used in
preparation of our consolidated financial statements. Refer to the portion of
this discussion that addresses our allowance for loan losses for a description
of our processes and methodology for determining our allowance for loan losses.

Overview
--------

         The year 2002 was highlighted by significant loan and deposit growth
despite a stagnant national and state economy. In 2002, we reported net income
of $530,000 as compared to a net loss in 2001 of $93,000. The increase in
earnings was primarily due to (i) an increase in mortgage origination fees
generated by Chestatee Mortgage, (ii) increases in service charge income, and
(iii) our overall growth. Our primary market area of Dawson County, Georgia
continues to grow. During the second quarter of 2003, we will open a new branch
facility in neighboring Forsyth County, Georgia to take advantage of the area's
growth. To supplement our capital for growth, we are currently offering to sell
up to a maximum of 250,000 shares of our common stock at a price of $10 per
share. As of December 31, 2002, 75,690 shares of common stock had been sold and
issued.

Financial Condition at December 31, 2002 and 2001

         The following is a summary of our balance sheets for the periods
indicated:

                                         Years Ended December 31,
                                       2002                2001
                                       ------------------------
                                          (Dollars in Thousands)

Cash and due from banks              $  3,516            $  3,479
Interest-bearing deposits in banks      1,329               1,300
Federal funds sold                      5,946              15,318
Securities                             15,612               1,548
Loans, net                            140,285             111,493
Premises and equipment                  6,065               5,059
Other assets                            2,660               1,938
                                        -----               -----

                                     $175,413            $140,135
                                     ========            ========

Total deposits                       $143,721            $113,622
Other borrowings                       10,250              12,850
Other liabilities                       1,223                 480
Stockholders' equity                   20,219              13,183
                                       ------              ------

                                     $175,413            $140,135
                                     ========            ========

                                       20
<PAGE>
         As of December 31, 2002, we had total assets of $175 million, an
increase of 25% over December 31, 2001. Total interest-earning assets were $163
million at December 31, 2002 or 93% of total assets as compared to 93% of total
assets at December 31, 2001. Our primary interest-earning assets at December 31,
2002 were loans, which made up 86% of total interest-earning assets as compared
to 86% at December 31, 2001. Our ratio of loans to deposits and other borrowings
was 92% at December 31, 2002 as compared to 89% at December 31, 2001. Deposit
growth of $30 million and net proceeds from our 2002 stock offerings of $6.4
million were used to fund loan growth of $29.7 million with the majority of the
balance being invested in available for sale securities.

         Our securities portfolio, consisting of U.S. Agency and restricted
equity securities, amounted to $15.6 million at December 31, 2002. Unrealized
gains on securities available-for-sale were $97,000 at December 31, 2002 as
compared to $5,000 at December 31, 2001. Unrealized gains on securities
held-to-maturity were $4,000 at December 31, 2002 as compared to $14,000 at
December 31, 2001. We have not specifically identified any securities for sale
in future periods, which, if so designated, would require a charge to operations
if the market value would not be reasonably expected to recover prior to the
time of sale.

         We have 68% of our loan portfolio collateralized by real estate located
in our primary market area of Dawson County, Georgia and surrounding counties.
Our real estate mortgage portfolio consists of loans collateralized by one to
four-family residential properties (26%), construction loans to build one to
four-family residential properties (28%), and nonresidential properties
consisting primarily of small business commercial properties (46%). We generally
require that loans collateralized by real estate not exceed 80% of the
collateral value.

         The remaining 32% of the loan portfolio consists of commercial,
consumer, and other loans. We require collateral commensurate with the repayment
ability and creditworthiness of the borrower.

         The specific economic and credit risks associated with our loan
portfolio, especially the real estate portfolio, include, but are not limited
to:

     o    a general downturn in the economy which could affect unemployment
          rates in our market area, general real estate market deterioration,
     o    interest rate fluctuations,
     o    deteriorated or non-existing collateral, title defects, inaccurate
          appraisals,
     o    financial deterioration of borrowers, fraud, and
     o    any violation of banking protection laws.

         Construction lending can also present other specific risks to the
lender such as whether developers can find builders to buy lots for home
construction, whether the builders can obtain financing for the construction,
whether the builders can sell the home to a buyer, and whether the buyer can
obtain permanent financing. Although real estate values and employment trends in
our market area did not significantly deteriorate in 2002, we cannot predict
what impact a war in the Middle East or further terrorism on American soil would
have on the local economy.

                                       21
<PAGE>
         We attempt to reduce these economic and credit risks not only by
adhering to loan to value guidelines, but also by investigating the
creditworthiness of the borrower and monitoring the borrower's financial
position. Also, we establish and periodically review our lending policies and
procedures. State banking regulations limit exposure by prohibiting secured loan
relationships that exceed 25% of the Bank's statutory capital and unsecured loan
relationships that exceed 15% of the Bank's statutory capital.

Liquidity and Capital Resources
-------------------------------

         The purpose of liquidity management is to ensure that there are
sufficient cash flows to satisfy demands for credit, deposit withdrawals, and
our other needs. Traditional sources of liquidity include asset maturities and
growth in core deposits. A company may achieve its desired liquidity objectives
from the management of assets and liabilities and through funds provided by
operations. Funds invested in short-term marketable instruments and the
continuous maturing of other earning assets are sources of liquidity from the
asset perspective. The liability base provides sources of liquidity through
deposit growth, the maturity structure of liabilities, and accessibility to
market sources of funds.

         Scheduled loan payments are a relatively stable source of funds, but
loan payoffs and deposit flows fluctuate significantly, being influenced by
interest rates and general economic conditions and competition. We attempt to
price deposits to meet asset/liability objectives consistent with local market
conditions.

         Our liquidity and capital resources are monitored on a periodic basis
by management, State and Federal regulatory authorities. As determined under
guidelines established by regulatory authorities and internal policy, our
liquidity was considered satisfactory.

         At December 31, 2002, we had loan commitments outstanding of $23.4
million. Because these commitments generally have fixed expiration dates and
many will expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. If needed, we have the ability
on a short-term basis to borrow and purchase federal funds from other financial
institutions. At December 31, 2002, we had arrangements with a commercial bank
for additional short-term advances of $2,000,000.

         At December 31, 2002, our capital ratios were considered adequate based
on regulatory minimum capital requirements. Stockholders' equity increased in
2002 by $7.04 million due to net income of $530,000, net proceeds received from
our stock offering of $6.45 million, and an increase in other comprehensive
income related to our securities available-for-sale of $57,000. For regulatory
purposes, the net unrealized gains and losses on securities available-for-sale
are excluded in the computation of the capital ratios.

         In the future, the primary source of funds available to us will be the
payment of dividends by the Bank. Banking regulations limit the amount of the
dividends that may be paid without prior approval of the Bank's regulatory
agency. At December 31, 2002, $218,000 in dividends could be paid by the Bank
without regulatory approval.

                                       22
<PAGE>
         The minimum capital requirements to be considered well capitalized
under prompt corrective action provisions and the actual capital ratios for the
Company and the Bank as of December 31, 2002 are as follows:

                                               Actual
                                  -----------------------------
                                                                     Regulatory
                                  Consolidated          Bank        Requirements
                                  ------------          ----        ------------

Leverage capital ratio                11.42%            10.96%          5.00%
Risk-based capital ratios:
             Core capital             13.42             12.83           6.00
             Total capital            14.67             14.08          10.00

         We expect that these ratios may decline with continued asset growth,
but remain in excess of the regulatory minimum requirements. Anticipated future
earnings and additional capital raised from our current stock offering will
assist in keeping these ratios at satisfactory levels.

         We believe that our liquidity and capital resources are adequate and
will meet our foreseeable short and long-term needs. We anticipate that we will
have sufficient funds available to meet current loan commitments and to fund or
refinance, on a timely basis, our other material commitments and liabilities.

         Management is not aware of any other known trends, events or
uncertainties, other than those discussed above, that will have or that are
reasonably likely to have a material effect on our liquidity, capital resources
or operations. Management is also not aware of any current recommendations by
the regulatory authorities that, if they were implemented, would have such an
effect.

Effects of Inflation
--------------------

         The impact of inflation on banks differs from its impact on
non-financial institutions. Banks, as financial intermediaries, have assets that
are primarily monetary in nature and that tend to fluctuate in concert with
inflation. A bank can reduce the impact of inflation if it can manage its rate
sensitivity gap. This gap represents the difference between rate sensitive
assets and rate sensitive liabilities. We, through our asset-liability
committee, attempt to structure the assets and liabilities and manage the rate
sensitivity gap, thereby seeking to minimize the potential effects of inflation.
For information on the management of the Bank's interest rate sensitive assets
and liabilities, see the "Asset/Liability Management" section.

                                       23
<PAGE>
Results of Operations For The Years Ended December 31, 2002 and 2001
--------------------------------------------------------------------

         The following is a summary of our operations for the years indicated.

                                             Years Ended December 31,
                                          -------------------------------
                                            2002                    2001
                                          -------------------------------
                                              (Dollars in Thousands)

Interest income                           $ 10,654                $ 8,500

Interest expense                             4,456                  4,360
                                             -----                  -----

Net interest income                          6,198                  4,140

Provision for loan losses                    1,020                    568

Other income                                   971                    565

Other expenses                               5,385                  4,313
                                             -----                  -----

Pretax income (loss)                           764                   (176)

Income taxes (benefits)                        234                    (83)
                                               ---                    ---

Net income (loss)                         $    530                $   (93)
                                          ========                =======

Net Interest Income
-------------------

         Our results of operations are determined by our ability to manage
interest income and expense effectively, to minimize loan and investment losses,
to generate non-interest income, and to control operating expenses. Because
interest rates are determined by market forces and economic conditions beyond
our control, our ability to generate net interest income depends on our ability
to obtain an adequate net interest spread between the rate we pay on
interest-bearing liabilities and the rate we earn on interest-earning assets.

         The net yield on average interest-earning assets was 4.03% in 2002 as
compared to 4.27% in 2001. Average loans increased by $42 million which were the
primary change in average interest-earning assets that increased overall by $56
million. Average interest-bearing liabilities increased by $48 million as
average interest bearing demand deposits increased $22 million, average time
deposits increased $14 million and average other borrowings increased $11
million. The rate earned on average interest-earning assets decreased to 6.94%
in 2002 from 8.78% in 2001. The rate paid on average interest-bearing
liabilities decreased to 3.38% in 2002 as compared to 5.20% in 2001. The
decrease in our net yield was due primarily to the falling rate environment
experienced in 2002. As our time deposits continue to mature and reprice, we
expect to see our net yield increase.

                                       24
<PAGE>
Provision for Loan Losses
-------------------------

         The provision for loan losses was $1,020,000 in 2002 as compared to
$568,000 in 2001. Management's evaluation of the adequacy of the allowance for
loan losses is based on known and inherent risks in the portfolio, adverse
situations that may affect the borrowers' ability to repay, estimated value of
underlying collateral and an analysis of current economic conditions. In
addition to the amounts provided due to loan growth, increased net loan charge
offs, increased past due loans, and to our assessment of the inherent risk in
the loan portfolio, an additional provision was made to cover a potential loss
associated with a borrower who's ability to repay depends largely on tourism in
the local area, which has suffered given the national economy. Management
believes that, given this review and analysis, the $2,126,000 in the allowance
for loan losses at December 31, 2002, or 1.49% of total net outstanding loans
and the $1,252,000 in the allowance for loan losses at December 31, 2001, or
1.11% of total net loans outstanding, are adequate at their respective dates to
absorb known risks in the portfolio based upon the Bank's historical experience.
No assurance can be given, however, that increased loan volume, and adverse
economic conditions or other circumstances will not result in increased losses
in our loan portfolio.

Other Income
------------

         Other operating income consists of service charges on deposit accounts
and other miscellaneous revenues and fees. Other operating income was $971,000
in 2002 as compared to $565,000 in 2001. The net increase is due primarily to an
increase in service charges on deposit accounts of $212,000 related to overall
deposit growth and an increase in mortgage loan origination fees of $141,000.

Other Expense
-------------

         Other expenses were $5,385,000 in 2002 as compared to $4,313,000 in
2001, an increase of $1,072,000. Salaries and employees benefits increased by
$720,000 due to annual salary increases and an increase in the number of full
time equivalent employees to 60 at December 31, 2002 from 56 at December 31,
2002. The increase in the number of employees is due to the addition of lending
staff for the new branch facility scheduled to open in the spring of 2003 and
the addition of senior management positions. Equipment and occupancy expenses
increased by $171,000 due primarily to increased depreciation costs of $102,000
and increased repairs and maintenance costs of $67,000. Other operating expenses
increased by $181,000 due primarily to increased data processing costs of
$80,000, increased software costs of $28,000, and increased other operating
costs of $25,000. The increases in other operating expenses are directly
attributable to the overall growth of the Bank.

Income Tax
----------

         We have reported income tax expense in 2002 of $234,000 as compared to
an income tax benefit in 2001 of $83,000. The rate of the tax benefit as a
percentage of our pretax income was 31%. In 2001, the rate of the tax benefit as
a percentage of our pretax loss was 47%. This percentage is higher than the
federal statutory percentage of 34% due to 2001's current taxable

                                       25
<PAGE>
income as reported on our income tax return being taxed at a 15% rate,
accounting for a 9% surtax exemption benefit. In addition, state income tax
benefits recognized in 2001 accounted for an additional 6% reduction in our
overall tax rate.

Asset/Liability Management
--------------------------

         Our objective is to manage assets and liabilities to provide a
satisfactory, consistent level of profitability within the framework of
established cash, loan, investment, borrowing, and capital policies. Certain
officers are charged with the responsibility for monitoring policies and
procedures designed to ensure acceptable composition of the asset/liability mix.
Management's overall philosophy is to support asset growth primarily through
growth of core deposits of all categories made by local individuals,
partnerships, and corporations.

         Our asset/liability mix is monitored on a regular basis with a report
reflecting the interest rate-sensitive assets and interest rate-sensitive
liabilities being prepared and presented to the Bank's Board of Directors on a
monthly basis. The objective of this policy is to monitor interest
rate-sensitive assets and liabilities so as to minimize the impact of
substantial movements in interest rates on earnings. An asset or liability is
considered to be interest rate-sensitive if it will reprice or mature within the
time period analyzed, usually one year or less. The interest rate-sensitivity
gap is the difference between the interest-earning assets and interest-bearing
liabilities scheduled to mature or reprice within such time period. A gap is
considered positive when the amount of interest rate-sensitive assets exceeds
the amount of interest rate-sensitive liabilities. A gap is considered negative
when the amount of interest rate-sensitive liabilities exceeds the interest
rate-sensitive assets. During a period of rising interest rates, a negative gap
would tend to affect net interest income adversely, while a positive gap would
tend to result in an increase in net interest income. Conversely, during a
period of falling interest rates, a negative gap would tend to result in an
increase in net interest income, while a positive gap would tend to affect net
interest income adversely. If our assets and liabilities were equally flexible
and moved concurrently, the impact of any increase or decrease in interest rates
on net interest income would be minimal.

         A simple interest rate "gap" analysis by itself may not be an accurate
indicator of how net interest income will be affected by changes in interest
rates. Accordingly, we also evaluate how the repayment of particular assets and
liabilities is impacted by changes in interest rates. Income associated with
interest-earning assets and costs associated with interest-bearing liabilities
may not be affected uniformly by changes in interest rates. In addition, the
magnitude and duration of changes in interest rates may have a significant
impact on net interest income. For example, although certain assets and
liabilities may have similar maturities or periods of repricing, they may react
in different degrees to changes in market interest rates. Interest rates on
certain types of assets and liabilities fluctuate in advance of changes in
general market rates, while interest rates on other types may lag behind changes
in general market rates. In addition, certain assets, such as adjustable rate
mortgage loans, have features (generally referred to as "interest rate caps and
floors") that limit changes in interest rates. Prepayment and early withdrawal
levels also could deviate significantly from those assumed in calculating the
interest rate gap. The ability of many borrowers to service their debts also may
decrease during periods of rising interest rates.

                                       26
<PAGE>
         Changes in interest rates also affect our liquidity position. We
currently price deposits in response to market rates and it is management's
intention to continue this policy. If deposits are not priced in response to
market rates, a loss of deposits could occur that would negatively affect our
liquidity position.

         At December 31, 2002, our cumulative one year interest rate-sensitivity
gap ratio was 1.13%. Our targeted ratio is 80% to 120% in this time horizon.
This indicates that our interest-earning assets will reprice during this period
at a rate faster than our interest-bearing liabilities.

         The following table sets forth the distribution of the repricing of our
interest-earning assets and interest-bearing liabilities as of December 31,
2002, the interest rate-sensitivity gap, the cumulative interest
rate-sensitivity gap, the interest rate-sensitivity gap ratio and the cumulative
interest rate-sensitivity gap ratio. The table also sets forth the time periods
in which interest-earning assets and interest-bearing liabilities will mature or
may reprice in accordance with their contractual terms. However, the table does
not necessarily indicate the impact of general interest rate movements on the
net interest margin as the repricing of various categories of assets and
liabilities is subject to competitive pressures and the needs of our customers.
In addition, various assets and liabilities indicated as repricing within the
same period may in fact, reprice at different times within such period and at
different rates.

<TABLE>
<CAPTION>
                                          After Three   After One
                                            Months      Year but
                                 Within       but        Within     After
                                  Three      Within      Five       Five
                                 Months     One Year     Years      Years       Total
                                 ----------------------------------------------------
                                             (Dollars in Thousands)

<S>                             <C>        <C>         <C>        <C>        <C>
Interest-earning assets:
     Interest-bearing
         deposits in banks      $    314   $  1,015    $   --     $   --     $  1,329
     Federal funds sold            5,946       --          --         --        5,946
     Securities                    1,497      2,512      10,960        643     15,612
     Loans                        94,129     23,990      23,724        568    142,411
                                  ------     ------      ------        ---    -------

                                 101,886     27,517      34,684      1,211    165,298
                                 -------     ------      ------      -----    -------

Interest-bearing liabilities:
     Interest-bearing demand
         deposits                 54,626       --          --         --       54,626
     Savings                       2,083       --          --         --        2,083
     Certificates of deposit      12,582     35,245      25,907          3     73,737
     Other borrowings              8,250      2,000        --         --       10,250
                                   -----      -----      ------     ------     ------

                                  77,541     37,245      25,907          3    140,696
                                  ------     ------      ------          -    -------

Interest rate sensitivity
     gap                        $ 24,345   $ (9,728)   $  8,777   $  1,208   $ 24,602
                                ========   ========    ========   ========   ========
Cumulative interest rate
     sensitivity gap            $ 24,345   $ 14,617    $ 23,394   $ 24,602
                                ========   ========    ========   ========
Interest rate sensitivity
     gap ratio                      1.31       0.74        1.34       --
                                    ====       ====        ====
Cumulative interest rate
     sensitivity gap ratio          1.31       1.13        1.17       1.17
                                    ====       ====        ====       ====
</TABLE>

                                       27
<PAGE>
               SELECTED FINANCIAL INFORMATION AND STATISTICAL DATA

         The tables and schedules on the following pages set forth certain
significant financial information and statistical data with respect to: the
distribution of our assets, liabilities and stockholders' equity; the interest
rates we experience; our investment portfolio; our loan portfolio, including
types of loans, maturities, and sensitivities of loans to changes in interest
rates and information on nonperforming loans; summary of the loan loss
experience and allowance for loan losses; types of deposits and the return on
equity and assets.

         DISTRIBUTION OF ASSETS, LIABILITIES, AND STOCKHOLDERS' EQUITY:
                    INTEREST RATES AND INTEREST DIFFERENTIALS

Average Balances
----------------

 The condensed average balance sheet for the year indicated is presented
below. (1)

                                       Years Ended December 31,
                                          2002         2001
                                       -----------------------
                                       (Dollars in Thousands)

ASSETS
Cash and due from banks                $   3,457    $   2,694
Interest-bearing deposits in banks         1,725          326
Taxable securities                        11,312        2,307
Securities valuation account                  56            3
Federal funds sold                         8,665        3,730
Loans (2)                                132,319       90,504
Allowance for loan losses                 (1,485)        (910)
Other assets                               7,722        5,470
                                           -----        -----
                                       $ 163,771    $ 104,124
                                       =========    =========

Total interest-earning assets          $ 154,021    $  96,867
                                       =========    =========

LIABILITIES AND STOCKHOLDERS' EQUITY
     Deposits:
Noninterest-bearing demand             $  12,918    $  10,047
Interest-bearing demand                   49,665       27,208
Savings                                    2,099        1,735
 Time                                     67,895       54,084
                                          ------       ------
Total deposits                           132,577       93,074
Other borrowings                          12,319          868
Other liabilities                            730          578
                                             ---          ---
Total liabilities                        145,626       94,520
Stockholders' equity                      18,145        9,604
                                          ------        -----
                                       $ 163,771    $ 104,124
                                       =========    =========

Total interest-bearing liabilities     $ 131,978    $  83,895
                                       =========    =========

(1) For each category, average balances were determined using the daily average
    balances during the year.

(2) Nonaccrual loans included in average balances for 2002 and 2001 were
    $607,000 and $383,000, respectively.

                                       28
<PAGE>
Interest Income and Interest Expense

         The following tables set forth the amount of our interest income and
interest expense for each category of interest-earning assets and
interest-bearing liabilities and the average interest rate for total
interest-earning assets and total interest-bearing liabilities, net interest
spread and net yield on average interest-earning assets.

<TABLE>
<CAPTION>
                                                                   Years Ended December 31,
                                                              2002                          2001
                                                                     Average                      Average
                                                    Interest          Rate          Interest        Rate
                                                                     (Dollars in Thousands)

<S>                                                 <C>               <C>          <C>               <C>
INTEREST INCOME:
     Interest and fees on loans (1)                 $10,045           7.59%        $ 8,197           9.06%
     Interest on deposits in banks                       47           2.72              19           5.84
     Interest on taxable securities                     417           3.67             128           5.58
     Interest on federal funds sold                     146           1.68             156           4.17
                                                        ---                            ---
     Total interest income                           10,655           6.94           8,500           8.78
                                                     ------                          -----

INTEREST EXPENSE:
     Interest on interest-bearing
       demand deposits                                1,174           2.36           1,014           3.73
     Interest on savings deposits                        31           1.48              47           2.70
     Interest on time deposits                        2,952           4.35           3,280           6.06
     Interest on other borrowings                       299           2.43              19           2.27
     ----------------------------                       ---                             --
     Total interest expense                           4,456           3.38           4,360           5.20
                                                      -----                          -----

NET INTEREST INCOME                                 $ 6,199                        $ 4,140

     Net interest spread                                              3.54%                          3.58%
                                                                      ====                           ====
     Net yield on average interest-earning assets                     4.02%                          4.27%
                                                                      ====                           ====
</TABLE>

(1) Interest and fees on loans includes $947,000 and $823,000 of loan fee income
    for the years ended December 31, 2002 and 2001, respectively. There was no
    interest income recognized on nonaccrual loans during 2002 or 2001.

Rate and Volume Analysis
------------------------

         The following table describes the extent to which changes in interest
rates and changes in volume of interest-earning assets and interest-bearing
liabilities have affected our interest income and expense during the year
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to:

o   change in volume (change in volume multiplied by old rate);
o   change in rate (change in rate multiplied by old volume); and
o   a combination of change in rate and change in volume.

                                       29
<PAGE>
The changes in interest income and interest expense attributable to both volume
and rate have been allocated proportionately on a consistent basis to the change
due to volume and the change due to rate.

                                                     Year Ended December 31,
                                                         2002 vs. 2001
                                                        Changes Due To:

                                                    Rate      Volume      Net
                                                  ----------------------------
                                                      (Dollars in Thousands)
Increase (decrease) in:
     Income from interest-earning assets:
         Interest and fees on loans               $(1,485)   $ 3,333   $ 1,848
         Interest on deposits in banks                (15)        43        28
         Interest on taxable securities               (56)       345       289
         Interest on federal funds sold              (131)       121       (10)
                                                     ----        ---       ---
         Total interest income                     (1,687)     3,842     2,155
                                                   ------      -----     -----

     Expense from interest-bearing liabilities:
         Interest on interest-bearing
         demand deposits                             (465)       625       160
         Interest on savings deposits                 (24)         8       (16)
         Interest on time deposits                 (1,053)       725      (328)
         Interest on other borrowings                   2        278       280
                                                     ----        ---       ---
         Total interest expense                    (1,540)     1,636        96
                                                   ------      -----        --

Net interest income                               $  (147)   $ 2,206   $ 2,059
                                                  =======    =======   =======

                                       30
<PAGE>
                              INVESTMENT PORTFOLIO

Types of Investments
--------------------

         The carrying amounts of securities at the dates indicated, of which
$14,569,000 are classified as available-for-sale, are summarized as follows:

                                              Years Ended December 31,
                                             2002                 2001
                                           ----------------------------
                                              (Dollars in Thousands)


U.S. Government agencies                   $ 14,969             $   905
Restricted equity securities                    643                 643
                                                ---                 ---
                                           $ 15,612             $ 1,548
                                           ========             =======

Maturities
----------

         The amounts of debt securities in each category as of December 31, 2002
are shown in the following table according to contractual maturity
classifications:

    o   one year or less;
    o   after one through five years;
    o   after five through ten years; and
    o   after ten years.

Restricted equity securities are not included in the table because they have no
contractual maturity.

<TABLE>
<CAPTION>
                                                              After one                After five
                                One year or less          through five years        through ten years
                              Amount       Yield (1)     Amount      Yield (1)     Amount      Yield (1)

<S>                          <C>            <C>         <C>            <C>          <C>            <C>
U.S. Government agencies     $ 3,937        2.92%       $ 11,032       3.88%        $ --           -%
                             =======                    ========                    ====
</TABLE>

<TABLE>
<CAPTION>
                                                            After ten years                Total
                                                         Amount       Yield (1)     Amount      Yield (1)

<S>                                                     <C>               <C>       <C>           <C>
U.S. Government agencies                                $   --            -%        $ 14,969      3.64%
                                                        ======                      ========
</TABLE>

(1) The weighted average yields were computed using coupon interest, adding
    discount accretion or subtracting premium amortization, as appropriate, on a
    ratable basis over the life of each security.

                                       31
<PAGE>
                                 LOAN PORTFOLIO

Types of Loans
--------------

         The amounts of loans outstanding at the indicated dates are shown in
the following table according to the type of loan.

                                       December 31,
                                    2002         2001
                                 -----------------------
                                  (Dollars in Thousands)

Commercial                       $  30,514    $  26,666
Real estate-construction            27,368       20,880
Real estate-mortgage                70,313       51,632
Consumer installment and other      14,216       13,567
                                    ------       ------
                                   142,411      112,745
Less allowance for loan losses      (2,126)      (1,252)
                                    ------       ------
Net loans                        $ 140,285    $ 111,493
                                 =========    =========


Maturities and Sensitivities of Loans to Changes in Interest Rates
------------------------------------------------------------------

         Total loans as of December 31, 2002 are shown in the following table
according to contractual maturity classifications:

    o   one year or less,
    o   after one through five years, and
    o   after five years.

                                         (Dollars in Thousands)
Commercial
    One year or less                            $ 23,161
    After one through five years                   6,256
    After five years                               1,097
                                                   -----
                                                  30,514
                                                  ------
Construction
    One year or less                              27,368
    After one through five years                    --
    After five years                                --
                                                  ------
                                                  27,368
                                                  ------
Other
    One year or less                              43,656
    After one through five years                  30,830
    After five years                              10,043
                                                  ------
                                                  84,529

                                                $142,411
                                                ========

                                       32
<PAGE>
         The following table summarizes loans at December 31, 2002 with the due
dates after one year that have predetermined and floating or adjustable interest
rates.

                                               (Dollars in Thousands)

Predetermined interest rates                        $ 26,087
Floating or adjustable interest rates                 22,139
                                                      ------
                                                    $ 48,226
                                                    ========

Risk Elements
-------------

Information with respect to nonaccrual, past due, restructured and other problem
loans at December 31, 2002 and 2001 is as follows:

                                                   December 31,
                                                  2002     2001
                                               ----------------------
                                               (Dollars in Thousands)

    Nonaccrual loans                              $  323   $  874
Loans contractually past due ninety
     days or more as to interest or
    principal payments and still accruing            995      120
    Restructured loans                                 0        0
    Potential problem loans                        1,913      200
Interest income that would have been recorded
     on nonaccrual and restructured loans under
    original terms                                    18       28
Interest income that was recorded on
    nonaccrual and restructured loans                  0        0

Potential problem loans are defined as loans about which we have serious doubts
as to the ability of the borrower to comply with the present loan repayment
terms and which may cause the loan to be placed on nonaccrual status, to become
past due more than ninety days, or to be restructured.

         It is our policy to discontinue the accrual of interest income when, in
the opinion of management, collection of interest becomes doubtful. This status
is accorded interest when (1) there is a significant deterioration in the
financial condition of the borrower and full repayment of principal and interest
is not expected and (2) the principal or interest is more than ninety days past
due, unless the loan is both well-secured and in the process of collection.

                                       33
<PAGE>
                         SUMMARY OF LOAN LOSS EXPERIENCE

         The following table summarizes average loan balances for the year
determined using the daily average balances during the year; changes in the
allowance for loan losses arising from loans charged off; recoveries on loans
previously charged off; additions to the allowance which have been charged to
operating expense; and the ratio of net charge-offs during the year to average
loans.

                                            Years Ended December 31,
                                                2002        2001
                                             ----------------------
                                             (Dollars in Thousands)

Average amount of loans outstanding           $132,319    $ 90,504
                                              ========    ========

Balance of allowance for loan losses
     at beginning of year                     $  1,252    $    737
                                              ========    ========

Loans charged off
     Commercial and financial                     --          --
     Real estate- mortgage                         120        --
     Installment                                    35          58
                                                 -----       -----
                                                   155          58
                                                 -----       -----

Loans recovered
     Commercial and financial                        6        --
     Real estate mortgage                         --          --
     Installment                                     3           5
                                                 -----       -----
                                                     9           5
                                                 -----       -----

Net charge-offs                                    146          53
                                                 -----       -----

Additions to allowance charged to operating
     expense during year                         1,020         568
                                                 -----       -----

Balance of allowance for loan losses
     at end of year                           $  2,126    $  1,252
                                              ========    ========

Ratio of net loans charged off during the
year to average loans outstanding                  .11%        .06%
                                                   ===         ===

Allowance for Loan Losses
-------------------------

         The allowance for loan losses is maintained at a level that is deemed
appropriate by management to adequately cover all known and inherent risks in
the loan portfolio. Management's evaluation of the loan portfolio includes a
loan classification program. Under the program, as each loan is made, we assign

                                       34
<PAGE>
a loan grade. Each loan grade is assigned an allowance percentage determined
based on our experience specifically and the historical experience of the
banking industry generally. Loan classifications are then subject to periodic
review by the responsible lending officers and by senior management based upon
their judgment, our loan loss experience, current economic conditions that may
affect the borrower's ability to repay, lender requirements, the underlying
collateral value of the loans and other appropriate information. Management
relies predominantly on this ongoing review of the loan portfolio to assess the
risk characteristics of the portfolio in the aggregate and to determine
adjustments, if any, to our allowance for loan losses. Based upon this ongoing
review, we may identify loans that could be impaired. A loan is considered
impaired when it is probable that we will be unable to collect all principal and
interest due in accordance with the contractual terms of the loan agreement.
When we identify a loan as impaired, the allowance for loan losses is increased
if we determine that the amount of impairment is in excess of the allowance of
the allowance determined under our loan classification program. We maintain an
allowance for loan losses of no less than 1.0% of outstanding loans at all
times.

         As of December 31, 2002 and 2001, we had made no allocations of our
allowance for loan losses to specific categories of loans. Based on our best
estimate, the allocation of the allowance for loan losses to types of loans, as
of the indicated dates, is as follows:


                              December 31, 2002            December 31, 2001
                              Percent of loans in         Percent of loans in
                                 each category              each category
                            Amount   to total loans      Amount  to total loans
                            ---------------------------------------------------
                                         (Dollars in Thousands)

Commercial                  $  468       22%            $  376        24%
Real estate - construction     319       19                125        18
Real estate - mortgage       1,063       49                626        46
Consumer installment
loans and other                276       10                125        12
                               ---       --                ---        --
                            $2,126      100%            $1,252       100%
                            ======      ===             ======       ===

                                       35
<PAGE>
                                    DEPOSITS

         Average amount of deposits and average rates paid thereon, classified
as to noninterest-bearing demand deposits, interest-bearing demand deposits,
savings deposits, and time deposits is presented below. (1)

                                             Years Ended December 31,
                                           2002                     2001
                                    Amount      Percent       Amount     Percent
                                             (Dollars in Thousands)

Noninterest-bearing
demand deposits                    $ 12,918           -%     $ 10,047        --%
Interest-bearing demand deposits     49,665        2.36        27,208      3.73
Savings deposits                      2,099        1.48         1,735      2.70
Time deposits                        67,895        4.35        54,084      6.06
                                     ------                    ------
                                   $145,626                  $ 93,074
                                   ========                  ========

(1) Average balances were determined using the daily average balances during the
year.


         The amounts of time certificates of deposit issued in amounts of
$100,000 or more as of December 31, 2002 are shown below by category, which is
based on time remaining until maturity of (1) three months or less, (2) over
three through six months, (3) over six through twelve months, and (4) over
twelve months.

                                        (Dollars in Thousands)

 Three months or less                         $  6,006
 Over three months through six months            7,299
 Over six through twelve months                  9,066
 Over twelve months                              9,700
                                                 -----
 Total                                        $ 32,071
                                              ========

                                       36
<PAGE>
                    RETURN ON ASSETS AND STOCKHOLDERS' EQUITY

         The following rate of return information for the year indicated is
presented below.

                                                 Years Ended December 31,
                                              2002                    2001
                                              ----------------------------

Return on assets (1)                            .33%                  (.09)%
Return on equity (2)                           3.05                   (.98)
Dividend payout ratio (3)                         -                      -
Equity to assets ratio (4)                    10.67                   9.22

(1) Net income (loss) divided by average total assets.
(2) Net income (loss) divided by average equity.
(3) Dividends declared per share of common stock divided by net income per
    share.
(4) Average equity divided by average total assets.

                                       37
<PAGE>
ITEM 7 - FINANCIAL STATEMENTS
-----------------------------


                      CHESTATEE BANCSHARES, INC.
                           AND SUBSIDIARIES

                     CONSOLIDATED FINANCIAL REPORT

                           DECEMBER 31, 2002



                                       38
<PAGE>
                           CHESTATEE BANCSHARES, INC.
                                AND SUBSIDIARIES

                          CONSOLIDATED FINANCIAL REPORT
                                DECEMBER 31, 2002


                                TABLE OF CONTENTS


                                                                  Page
                                                                  ----

INDEPENDENT AUDITOR'S REPORT.......................................F-1

FINANCIAL STATEMENTS

     Consolidated balance sheets...................................F-2
     Consolidated statements of operations.........................F-3
     Consolidated statements of comprehensive income (loss) .......F-4
     Consolidated statements of stockholders' equity...............F-5
     Consolidated statements of cash flows.........................F-6
     Notes to consolidated financial statements....................F-7

<PAGE>
                          INDEPENDENT AUDITOR'S REPORT


To the Board of Directors
Chestatee Bancshares, Inc.
Dawsonville, Georgia


                  We have audited the accompanying consolidated balance sheets
of Chestatee Bancshares, Inc. and subsidiaries as of December 31, 2002 and 2001,
and the related consolidated statements of operations, comprehensive income
(loss), stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

                  We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

                  In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
Chestatee Bancshares, Inc. and subsidiaries as of December 31, 2002 and 2001,
and the results of their operations and their cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States of America.



                                              /s/ MAULDIN & JENKINS, LLC



Atlanta, Georgia
February 7, 2003

<PAGE>
                  CHESTATEE BANCSHARES, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2002 AND 2001

<TABLE>
<CAPTION>
                                     Assets                                        2002           2001
                                                                              ------------   ------------
<S>                                                                           <C>            <C>
Cash and due from banks                                                       $  3,516,119   $  3,479,452
Interest-bearing deposits in banks                                               1,328,541      1,299,930
Federal funds sold                                                               5,946,000     15,318,000
Securities available-for-sale                                                   14,568,644        505,469
Securities held-to-maturity, fair value of $404,000
   and $413,875, respectively                                                      399,940        399,627
Restricted equity securities, at cost                                              642,500        642,500

Loans                                                                          142,411,278    112,745,782
Less allowance for loan losses                                                   2,126,188      1,252,461
                                                                              ------------   ------------
          Loans, net                                                           140,285,090    111,493,321

Premises and equipment                                                           6,065,481      5,058,963
Other assets                                                                     2,660,392      1,937,862
                                                                              ------------   ------------

          Total assets                                                        $175,412,707   $140,135,124
                                                                              ============   ============

                      Liabilities and Stockholders' Equity

Deposits
    Noninterest-bearing                                                       $ 13,275,075   $ 11,367,999
    Interest-bearing                                                           130,445,806    102,253,672
                                                                              ------------   ------------
          Total deposits                                                       143,720,881    113,621,671
Other borrowings                                                                10,250,000     12,850,000
Other liabilities                                                                1,222,589        480,472
                                                                              ------------   ------------
          Total liabilities                                                    155,193,470    126,952,143
                                                                              ------------   ------------

Commitments and contingencies

Stockholders' equity
    Common stock; no par value; 20,000,000 shares authorized;
        2,925,690 and 2,275,000 shares issued and outstanding, respectively     19,618,713     13,169,370
    Retained earnings                                                              540,344         10,220
    Accumulated other comprehensive income                                          60,180          3,391
                                                                              ------------   ------------
          Total stockholders' equity                                            20,219,237     13,182,981
                                                                              ------------   ------------

          Total liabilities and stockholders' equity                          $175,412,707   $140,135,124
                                                                              ============   ============
</TABLE>

See Notes to Consolidated Financial Statements.

                                      F-2
<PAGE>
                   CHESTATEE BANCSHARES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     YEARS ENDED DECEMBER 31, 2002 AND 2001

<TABLE>
<CAPTION>
                                                                    2002          2001
                                                                -----------   -----------
<S>                                                             <C>           <C>
Interest income
    Loans, including fees                                       $10,044,750   $ 8,197,123
    Taxable securities                                              416,589       128,632
    Federal funds sold                                              145,840       155,647
    Interest-bearing deposits in banks                               47,045        19,044
                                                                -----------   -----------
          Total interest income                                  10,654,224     8,500,446
                                                                -----------   -----------

Interest expense
    Deposits                                                      4,156,745     4,340,933
    Other borrowings                                                299,033        19,735
                                                                -----------   -----------
          Total interest expense                                  4,455,778     4,360,668
                                                                -----------   -----------

          Net interest income                                     6,198,446     4,139,778
Provision for loan losses                                         1,019,658       568,279
                                                                -----------   -----------
          Net interest income after provision for loan losses     5,178,788     3,571,499
                                                                -----------   -----------

Other income
    Service charges on deposit accounts                             628,893       417,232
    Other operating income                                          341,909       148,013
                                                                -----------   -----------
          Total other income                                        970,802       565,245
                                                                -----------   -----------

Other expense
    Salaries and employee benefits                                2,752,548     2,032,709
    Equipment and occupancy expense                                 765,940       595,226
    Other operating expenses                                      1,866,692     1,685,438
                                                                -----------   -----------
          Total other expense                                     5,385,180     4,313,373
                                                                -----------   -----------

          Income (loss) before income tax (benefit)                 764,410      (176,629)

Income tax expense (benefit)                                        234,286       (82,942)
                                                                -----------   -----------

          Net income (loss)                                     $   530,124   $   (93,687)
                                                                ===========   ===========

Basic earnings (losses) per share                               $      0.20   $     (0.05)
                                                                ===========   ===========

Diluted earnings (losses) per share                             $      0.19   $     (0.05)
                                                                ===========   ===========
</TABLE>

See Notes to Consolidated Financial Statements.

                                      F-3
<PAGE>
                   CHESTATEE BANCSHARES, INC. AND SUBSIDIARIES

             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
                     YEARS ENDED DECEMBER 31, 2002 AND 2001

                                                            2002       2001
                                                          --------   --------

Net income (loss)                                         $530,124   $(93,687)

Other comprehensive income:
     Unrealized holding gains on securities
        available-for-sale arising during period, net of
        tax of $34,606 and $2,774, respectively             56,789      4,526
                                                          --------   --------

Comprehensive income (loss)                               $586,913   $(89,161)
                                                          ========   ========

See Notes to Consolidated Financial Statements.

                                      F-4
<PAGE>
                   CHESTATEE BANCSHARES, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                     YEARS ENDED DECEMBER 31, 2002 AND 2001

<TABLE>
<CAPTION>
                                                                                 Accumulated
                                          Common Stock                              Other          Total
                                 ---------------------------
                                                   Amount         Retained      Comprehensive   Stockholders'
                                    Shares         Paid In        Earnings      Income (Loss)      Equity
                                 ------------   ------------    ------------    ------------    ------------
<S>                                 <C>         <C>             <C>             <C>             <C>
Balance, December 31, 2000          1,900,000   $  9,482,364    $    103,907    $     (1,135)   $  9,585,136
    Net loss                             --             --           (93,687)           --           (93,687)
    Issuance of common stock          375,000      3,750,000            --              --         3,750,000
    Stock issue costs                    --          (62,994)           --              --           (62,994)
    Other comprehensive income           --             --              --             4,526           4,526
                                 ------------   ------------    ------------    ------------    ------------
Balance, December 31, 2001          2,275,000     13,169,370          10,220           3,391      13,182,981
    Net income                           --             --           530,124            --           530,124
    Issuance of common stock          650,690      6,506,900            --         6,506,900
    Stock issue costs                    --          (57,557)           --              --           (57,557)
    Other comprehensive income           --             --              --            56,789          56,789
                                 ------------   ------------    ------------    ------------    ------------
Balance, December 31, 2002          2,925,690   $ 19,618,713    $    540,344    $     60,180    $ 20,219,237
                                 ============   ============    ============    ============    ============
</TABLE>

See Notes to Consolidated Financial Statements.

                                      F-5
<PAGE>
                   CHESTATEE BANCSHARES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 2002 AND 2001
<TABLE>
<CAPTION>
                                                                     2002           2001
                                                                ------------    ------------
<S>                                                             <C>             <C>
OPERATING ACTIVITIES
    Net income (loss)                                           $    530,124    $    (93,687)
    Adjustments to reconcile net income (loss) to net cash
        provided by operating activities:
        Depreciation                                                 353,126         251,826
        Deferred taxes                                              (248,703)        (91,107)
        Provision for loan losses                                  1,019,658         568,279
        Increase in interest receivable                             (297,758)        (90,146)
        Increase (decrease) in interest payable                       64,102         (11,345)
        Net other operating activities                               742,026        (297,423)
                                                                ------------    ------------

          Net cash provided by operating activities                2,162,575         236,397
                                                                ------------    ------------

INVESTING ACTIVITIES
    Increase in interest-bearing deposits in banks                   (28,611)     (1,285,129)
    Purchase of securities available-for-sale                    (16,472,093)     (1,500,000)
    Proceeds from maturities of securities available-for-sale      2,500,000       3,146,287
    Proceeds from maturities of securities held-to-maturity             --           999,688
    Purchase of restricted equity securities                            --          (546,900)
    Net (increase) decrease in federal funds sold                  9,372,000     (12,588,000)
    Net increase in loans                                        (30,056,089)    (45,724,347)
    Purchase of premises and equipment                            (1,359,644)     (1,679,315)
    Purchase of life insurance policies                                 --          (590,000)
                                                                ------------    ------------

              Net cash used in investing activities              (36,044,437)    (59,767,716)
                                                                ------------    ------------

FINANCING ACTIVITIES
    Net increase in deposits                                      30,099,210      41,443,578
    Net proceeds from (repayments of) other borrowings            (2,600,000)     12,800,000
    Net proceeds from sale of common stock                         6,419,319       3,750,000
                                                                ------------    ------------

              Net cash provided by financing activities           33,918,529      57,993,578
                                                                ------------    ------------

Net increase (decrease) in cash and due from banks                    36,667      (1,537,741)

Cash and due from banks at beginning of year                       3,479,452       5,017,193
                                                                ------------    ------------

Cash and due from banks at end of year                          $  3,516,119    $  3,479,452
                                                                ============    ============

SUPPLEMENTAL DISCLOSURES Cash paid (received) for:
        Interest                                                $  4,391,676    $  4,372,013

        Income taxes                                            $    (82,576)   $    288,394

NONCASH TRANSACTIONS
     Principal balance of loans transferred
         to other real estate owned                             $  1,074,816    $     82,148

     Financed sales of other real estate owned                  $    830,154    $     90,000

     Accrued stock issue costs                                  $     32,970          62,994
</TABLE>

See Notes to Consolidated Financial Statements.

                                      F-6
<PAGE>
                   CHESTATEE BANCSHARES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        Nature of Business

        Chestatee Bancshares, Inc. (the "Company") is a bank holding company
        whose business is conducted by its wholly-owned subsidiaries, Chestatee
        State Bank (the "Bank"), Chestatee Residential Mortgage, Inc. ("CRM")
        and Chestatee Financial Services, Inc. ("CFS") The Bank is a commercial
        bank located in Dawsonville, Dawson County, Georgia. The Bank provides a
        full range of banking services in its primary market area of Dawson
        County and the surrounding counties. CRM, which as a member in Guaranty
        Mortgage Services, LLC, a nonaffiliated company, provides residential
        mortgage lending and origination services to customers in the Bank's
        primary market area. CFS provides investment and financial services to
        customers in the Bank's primary market area. CRM and CFS commenced
        operations in 2001.

        Basis of Presentation and Accounting Estimates

        The consolidated financial statements include the accounts of the
        Company and its subsidiaries. Significant intercompany transactions and
        balances have been eliminated in consolidation.

        In preparing financial statements in conformity with accounting
        principles generally accepted in the United States of America,
        management is required to make estimates and assumptions that affect the
        reported amounts of assets and liabilities and the disclosure of
        contingent assets and liabilities as of the balance sheet date 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 in the near term
        relate to the determination of the allowance for loan losses, the
        valuation of foreclosed real estate, and deferred taxes.

        Cash, Due From Bank and Cash Flows

        For purposes of reporting cash flows, cash and due from banks includes
        cash on hand, cash items in process of collection and amounts due from
        banks. Cash flows from loans, interest-bearing deposits in banks,
        federal funds sold, deposits and other borrowings are reported net.

        The Bank is required to maintain reserve balances in cash or on deposit
        with the Federal Reserve Bank, based on a percentage of deposits. The
        total of those reserve balances was approximately $519,000 at December
        31, 2002.

        Securities

        Debt securities that management has the positive intent and ability to
        hold to maturity are classified as held-to-maturity and recorded at
        amortized cost. Securities not classified as held-to-maturity, are
        classified as available-for-sale and recorded at fair value with
        unrealized gains and losses excluded from earnings and reported in other
        comprehensive income, net of the related deferred tax effect. Restricted
        equity securities without a readily determinable fair value are recorded
        at cost.

        Purchase premiums and discounts are recognized in interest income using
        the interest method over the terms of the securities. Gains and losses
        on the sale of securities are determined using the specific
        identification method. Declines in the fair value of held-to-maturity
        and available-for-sale securities below their cost that are deemed to be
        other than temporary are reflected in earnings as realized losses.

                                      F-7
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

        Loans

        Loans are reported at their outstanding principal balances less unearned
        income and the allowance for loan losses. Interest income is accrued on
        the principal balance.

        Nonrefundable loan fees and costs for loans are deferred and recognized
        in income over the life of the loans using a method which approximates a
        level yield.

        The accrual of interest on loans is discontinued when, in management's
        opinion, the borrower may be unable to meet payments as they become due,
        unless the loan is well-secured. All interest accrued but not collected
        for loans that are placed on nonaccrual or charged off is reversed
        against interest income. Interest income on nonaccrual loans is
        subsequently recognized only to the extent cash payments are received
        until the loans are returned to accrual status.

        The allowance for loan losses is established through a provision for
        loan losses charged to expense. Loans losses are charged against the
        allowance when management believes the collectibility of the principal
        is unlikely. Subsequent recoveries are credited to the allowance.

        The allowance is an amount that management believes will be adequate to
        absorb estimated losses in the loan portfolio. The allowance for loan
        losses is evaluated on a regular basis by management and is based upon
        management's periodic review of the collectibility of the loans in light
        of historical experience, the nature and volume of the loan portfolio,
        adverse situations that may affect the borrower's ability to repay,
        estimated value of any underlying collateral and prevailing economic
        conditions. This evaluation is inherently subjective as it requires
        estimates that are susceptible to significant revision as more
        information becomes available. While management uses the best
        information available to make its evaluation, future adjustments to the
        allowance may be necessary if there are significant changes in economic
        conditions. In addition, regulatory agencies, as an integral part of
        their examination process, periodically review the Company's allowance
        for loan losses, and may require the Company to make additions to the
        allowance based on their judgment about information available to them at
        the time of their examinations.

        A loan is considered impaired when it is probable the Company will be
        unable to collect all principal and interest payments due in accordance
        with the contractual terms of the loan agreement. Impaired loans are
        measured by either the present value of expected future cash flows
        discounted at the loan's effective interest rate, the loan's obtainable
        market price, or the fair value of the collateral if the loan is
        collateral dependent. The amount of impairment, if any, and any
        subsequent changes are included in the allowance for loan losses.

        Premises and Equipment

        Land is carried at cost. Premises and equipment are carried at cost less
        accumulated depreciation. Depreciation is computed principally by
        straight-line methods over the estimated useful lives of the assets.

        Other Real Estate Owned

        Other real estate owned represents properties acquired through
        foreclosure. Other real estate owned is held for sale and is carried at
        the lower of cost or fair value less estimated costs to sell. Any
        write-down to fair value at the time of transfer to other real estate
        owned is charged to the allowance for loan losses. Revenue and expenses
        from operations and changes in the valuation allowance are included in
        net expenses from foreclosed assets. The carrying amount of other real
        estate owned at December 31, 2002 and 2001 was $226,348 and $--,
        respectively.

                                       F-8
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

        Income Taxes

        Deferred income tax assets and liabilities are determined using the
        balance sheet method. Under this method, the net deferred tax asset or
        liability is determined based on the tax effects of the temporary
        differences between the book and tax bases of the various balance sheet
        assets and liabilities and gives current recognition to changes in tax
        rates and laws.

        Stock Compensation Plans

        At December 31, 2002, the Company has two stock-based employee
        compensation plans, which are described more fully in Note 8. The
        Company accounts for those plans under the recognition and measurement
        principles of APB Opinion No. 25, Accounting for Stock Issued to
        Employees, and related Interpretations. No stock-based employee
        compensation cost related to those plans is reflected in net income, as
        all options granted under those plans had an exercise price equal to the
        market value of the underlying stock on the date of grant. The Company
        also has remaining options outstanding that were granted to certain
        executive officers under employee agreements. Options earned under those
        agreements were granted at prices based upon the year-end book value of
        the Company. The Company recognized compensation costs under the
        employee agreements of $0 and $29,460 for the years ended December 31,
        2002 and 2001, respectively. The following table illustrates the effect
        on net income and earnings per share if the Company had applied the fair
        value recognition provisions of SFAS No. 123, Accounting for Stock-Based
        Compensation, to stock-based employee compensation.

<TABLE>
<CAPTION>
                                                            Years Ended December 31,
                                                          ----------------------------
                                                               2002             2001
                                                          --------------   -----------

<S>                                                       <C>              <C>
Net income (loss), as reported                            $      530,124   $   (93,687)
Deduct: Total stock-based employee compensation
      expense determined under fair value based
      method for all awards, net of related tax effects          (63,557)     (401,029)
                                                          --------------   -----------
Pro forma net income (loss)                               $      466,567   $  (494,716)
                                                          ==============   ===========
Earnings (losses) per share:
   Basic - as reported                                    $          .20   $     (0.05)
                                                          ==============   ===========
   Basic - pro forma                                      $          .17   $     (0.26)
                                                          ==============   ===========
   Diluted - as reported                                  $          .19   $     (0.05)
                                                          ==============   ===========
   Diluted - pro forma                                    $          .17   $     (0.26)
                                                          ==============   ===========
</TABLE>

        Earnings (Losses) Per Share

        Basic earnings (losses) per share are computed by dividing net income
        (loss) by the weighted-average number of shares of common stock
        outstanding. Diluted earnings (losses) per share are computed by
        dividing net income (loss) by the sum of the weighted-average number of
        shares of common stock outstanding and potential common shares.
        Potential common shares consist of stock options.

                                       F-9
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

        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.

        Accounting Standards

        In December 2002, the FASB issued SFAS No. 148, Accounting for
        Stock-Based Compensation-Transition and Disclosure. SFAS No. 148 amends
        SFAS No. 123, Accounting for Stock-Based Compensation, to provide
        alternative methods of transition for an entity that voluntarily changes
        to the fair value based method of accounting for stock-based employee
        compensation. It also amends the disclosure provisions of SFAS No. 123
        to require prominent disclosure about the effects on reported net income
        of an entity's accounting policy decisions with respect to stock-based
        employee compensation. The Company has not elected to adopt the
        recognition provisions of this Statement for stock-based employee
        compensation and has elected to continue with accounting methodology in
        Opinion No. 25 as permitted by SFAS No. 123.

NOTE 2. SECURITIES

        The amortized cost and fair value of securities are summarized as
        follows:
<TABLE>
<CAPTION>
                                                    Gross          Gross
                                     Amortized    Unrealized     Unrealized      Fair
                                        Cost         Gains         Losses        Value
                                   ------------   ----------    -----------   -----------
<S>                                 <C>           <C>           <C>           <C>
Securities Available-for-Sale
   December 31, 2002:
   U.S. Government and
      agency securities             $14,471,780   $    97,401   $      (537)  $14,568,644
                                    ===========   ===========   ===========   ===========

   December 31, 2001:
   U.S. Government and
      agency securities             $   500,000   $     5,469   $      --     $   505,469
                                    ===========   ===========   ===========   ===========

      Securities Held-to-Maturity
   December 31, 2002:
   U. S. Government and agency
      securities                    $   399,940   $     4,060   $      --     $   404,000
                                    ===========   ===========   ===========   ===========

   December 31, 2001:
   U. S. Government and agency
      securities                    $   399,627   $    14,248   $      --     $   413,875
                                    ===========   ===========   ===========   ===========
</TABLE>

                                      F-10
<PAGE>
NOTE 2. SECURITIES (Continued)

        Securities with a carrying value of $760,500 and $399,627 at December
        31, 2002 and 2001 were pledged to secure public deposits and for other
        purposes required or permitted by law.

        The amortized cost and fair value of debt securities as of December 31,
        2002 by contractual maturity are shown below.

<TABLE>
<CAPTION>
                                    Securities                 Securities
                                Available-for-Sale           Held-to-Maturity
                             -------------------------   ------------------------
                             Amortized        Fair       Amortized       Fair
                                Cost          Value         Cost         Value
                             -----------   -----------   -----------  ------------
<S>                          <C>           <C>           <C>           <C>
Due in less than one year    $ 3,512,231   $ 3,536,588   $   399,940   $   404,000
Due from one to five years    10,959,549    11,032,056          --            --
                             -----------   -----------   -----------   -----------
                             $14,471,780   $14,568,644   $   399,940   $   404,000
                             ===========   ===========   ===========   ===========
</TABLE>

NOTE 3.  LOANS

                  The composition of loans is summarized as follows:

                                       December 31,
                              -----------------------------
                                  2002             2001
                              ------------    -------------

Commercial and industrial    $  30,514,000    $  26,666,000
Real estate - construction      27,368,000       20,880,000
Real estate - mortgage          70,355,000       51,703,000
Consumer and other              14,216,000       13,567,608
                             -------------    -------------
                               142,453,000      112,816,608
Unearned income                    (41,722)         (70,826)
Allowance for loan losses       (2,126,188)      (1,252,461)
                             -------------    -------------
Loans, net                   $ 140,285,090    $ 111,493,321
                             =============    =============

            Changes in the allowance for loan losses are as follows:

                                                 Years Ended December 31,
                                                --------------------------
                                                    2002           2001
                                                -----------    -----------

Balance, beginning of year                      $ 1,252,461    $   736,898
   Provision for loan losses                      1,019,658        568,279
   Loans charged off                               (155,273)       (57,655)
   Recoveries of loans previously charged off         9,342          4,939
                                                -----------    -----------
Balance, end of year                            $ 2,126,188    $ 1,252,461
                                                ===========    ===========

                                      F-11
<PAGE>
NOTE 3. LOANS (Continued)

        The total recorded investment in impaired loans, consisting solely of
        loans on nonaccrual status, was $323,388 and $873,620 at December 31,
        2002 and 2001, respectively. There were no impaired loans that had
        related allowances for loan losses determined in accordance with SFAS
        No. 114, Accounting by Creditors for Impairment of a Loan, at December
        31, 2002 and 2001. The average recorded investment in impaired loans for
        2002 and 2001 was $607,247 and $383,376, respectively. Interest income
        recognized for cash payments received on impaired loans was not material
        for the years ended December 31, 2002 and 2001. Loans past due ninety
        days or more and still accruing interest amounted to $994,705 and
        $120,000 at December 31, 2002 and 2001, respectively.

        In the ordinary course of business, the Company has granted loans to
        certain related parties, including directors, executive officers, and
        their affiliates. The interest rates on these loans were substantially
        the same as rates prevailing at the time of the transaction and
        repayment terms are customary for the type of loan. Changes in related
        party loans for the year ended December 31, 2002 are as follows:

     Balance, beginning                                    11,494,000
        Advances                                           14,597,000
        Repayments                                       (10,040,000)
                                                         ------------
     Balance, ending                                       16,051,000
                                                         ============

NOTE 4. PREMISES AND EQUIPMENT

        Premises and equipment are summarized as follows:

                                                              December 31,
                                                     --------------------------
                                                         2002           2001
                                                     ----------     -----------

Land                                                 $ 1,405,873    $   750,029
Buildings                                              3,459,370      3,366,586
Equipment                                              1,950,693      1,546,657
Construction and equipment installation in progress,
   estimated cost to complete $750,000                   206,780           --
                                                     -----------    -----------
                                                       7,022,716      5,663,272
Accumulated depreciation                                (957,235)      (604,309)
                                                     -----------    -----------
                                                     $ 6,065,481    $ 5,058,963
                                                     ===========    ===========
                                      F-12
<PAGE>
NOTE 4.  PREMISES AND EQUIPMENT (Continued)

        Lease

        The Company leases certain of its administrative office facilities under
        a noncancelable operating lease agreement from an entity owned by the
        Board of Directors. The Company also leases certain of its branch
        facilities under various other noncancelable operating lease agreements.
        The initial terms of the leases range from two to five years. The leases
        require the Company to pay normal maintenance costs.

        Future minimum lease payments on noncancelable leases based on initial
        terms are summarized as follows:

      2003                                                  $  50,500
      2004                                                     40,500
      2005                                                     40,500
      2006                                                     40,500
      2007                                                     40,500
                                                            ----------
                                                            $ 212,500
                                                            ==========

                  Total rental expense is summarized as follows:

                                       Years Ended December 31,
                                        --------------------
                                          2002        2001
                                        --------    --------

     Related party                      $ 49,236    $ 43,875
     Other third parties                  18,250      52,325
                                        ---------   ---------
                                        $ 67,486    $ 96,200
                                        =========   =========


NOTE 5.  DEPOSITS

        The aggregate amount of time deposits in denominations of $100,000 or
        more at December 31, 2002 and 2001 was $32,071,000 and $30,812,214,
        respectively. The Company had brokered certificates of deposit at
        December 31, 2002 and 2001 of $3,594,000 and $3,591,704, respectively.
        The scheduled maturities of time deposits at December 31, 2002 are as
        follows:

      2003                                    $  47,670,950
      2004                                       20,716,654
      2005                                        1,670,731
      2006                                        1,366,276
      2007                                        2,308,479
      Thereafter                                      3,169
                                              --------------
                                              $  73,736,259
                                              ==============

                                      F-13
<PAGE>
NOTE 6. OTHER BORROWINGS

        Other borrowings consist of the following:

<TABLE>
<CAPTION>
                                                                              December 31,
                                                                      -------------------------
                                                                          2002          2001
                                                                      -----------   -----------
<S>                                                                   <C>           <C>
Adjustable rate advance from Federal Home Loan Bank with
   interest payable monthly (interest rate adjusts quarterly, 1.44%

   at December 31, 2002), matures June 20, 2003                       $ 8,250,000   $ 8,250,000
Fixed rate advance from Federal Home Loan Bank with interest
   payable monthly at 2.67%, matures April 3, 2002                           --       1,000,000
Fixed rate advance from Federal Home Loan Bank with interest
   payable monthly at 2.67%, matures October 3, 2002                         --       1,600,000
Fixed rate advance from Federal Home Loan Bank with interest
   payable monthly at 2.99%, matures April 3, 2003                      1,000,000     1,000,000
Fixed rate advance from Federal Home Loan Bank with interest
   payable monthly at 3.30%, matures October 3, 2003                    1,000,000     1,000,000
                                                                      -----------   -----------
                                                                      $10,250,000   $12,850,000
                                                                      ===========   ===========
</TABLE>

        The advances from the Federal Home Loan Bank are secured by certain
        qualifying loans of approximately $18 million and Federal Home Loan Bank
        stock of $642,500.


NOTE 7. EMPLOYEE BENEFIT PLANS

        Deferred Compensation Plan

        The Company has a deferred compensation plan providing for death and
        retirement benefits for its chief executive officer. The estimated
        amounts to be paid under the compensation plan are being funded through
        the purchase of life insurance policies on the executive officer. The
        balance of the policy cash surrender values included in other assets at
        December 31, 2002 and 2001 is $628,910 and $598,361, respectively.
        Income recognized on the policies amounted to $30,549 and $8,361 for the
        years ended December 31, 2002 and 2001, respectively. The balance of
        deferred compensation included in other liabilities at December 31, 2002
        and 2001 is $16,200 and $3,240, respectively. Expense recognized for
        deferred compensation was $12,960 and $3,240 for the years ended
        December 31, 2002 and 2001, respectively.

        401(K) Plan

        The Company has a 401(K) plan available to all eligible employees,
        subject to certain minimum age and service requirements. Contributions
        charged to expense were $29,360 and $21,941 for the years ended December
        31, 2002 and 2001, respectively.

                                      F-14
<PAGE>
NOTE 8. STOCK COMPENSATION PLANS AND AGREEMENTS

        The Company has two stock option plans and has reserved a total of
        300,000 options for grant to the Company's officers and directors.
        Options are granted at the fair value of the Company's common stock at
        the date of grant and expire ten years from the date of grant.

        The Company also has outstanding options related to previous employee
        agreements with certain of its executive officers whereby stock options
        were earned based upon the performance of the Company. Options earned
        under these agreements were priced at the Company's book value as of
        year-end and expire ten years from the date the options were earned.

        Other pertinent information related to the options follows:

                                                2002               2001
                                         -----------------  ------------------
                                                 Weighted-           Weighted-
                                                  Average             Average
                                                  Exercise            Exercise
                                         Shares    Price    Shares     Price
                                         -------   ------  --------   --------

Under option, beginning of year          244,000   $ 7.85    20,000   $   4.89
Granted                                   26,000    10.00   224,000       8.11
Exercised                                   --       --        --          --
Cancelled                                   --       --        --          --
                                         -------            -------
Under option, end of year                270,000     8.06   244,000       7.85
                                         =======            =======

Exercisable, end of year                 231,000     7.85   201,000       7.67
                                                            =======      =====
Weighted-average fair value of options
   granted during the year               $  3.34            $  3.44

Information pertaining to options outstanding at December 31, 2002 is as
follows:

<TABLE>
<CAPTION>
                                     Options Outstanding                  Options Exercisable
                        --------------------------------------------   --------------------------
                                          Weighted-
                                           Average        Weighted-                     Weighted-
                                          Remaining        Average                       Average
    Range of               Number        Contractual       Exercise        Number       Exercise
Exercise Prices          Outstanding         Life           Price       Exercisable       Price
----------------        ------------    ------------      ----------   ------------    ----------

<S>                          <C>            <C>           <C>              <C>         <C>
 $4.75 - $5.82                22,000        8 years       $   4.97          22,000     $  4.97
 $8.00 - $10.00              248,000        9 years           8.33         209,000        8.15
                        ------------                                    ----------
                             270,000        9 years           8.06         231,000        7.85
                        ============                                    ==========
</TABLE>

                                      F-15
<PAGE>
NOTE 8. STOCK COMPENSATION PLANS AND AGREEMENTS (Continued)

        The fair value of the options is estimated on the date of grant using
        the Black-Scholes option-pricing model with the following
        weighted-average assumptions.

<TABLE>
<CAPTION>
                                                               Years Ended December 31,
                                                               -----------------------
                                                                 2002           2001
                                                               --------      ---------
<S>                                                            <C>           <C>
Dividend yield (as a percent of the fair value of the stock)      0%            0%
Expected life                                                  10 years       10 years
Expected volatility                                               0.01%         0.01%
Risk-free interest rate                                           4.11%         5.59%

</TABLE>

NOTE 9. INCOME TAXES

        Income tax expense consists of the following:

                                         Years Ended December 31,
                                    -------------------------------
                                      2002                  2001
                                    ---------            ----------

Current                             $ 482,989            $    8,165
Deferred                             (248,703)              (91,107)
                                                          ---------
     Income tax expense (benefit)   $ 234,286             $ (82,942)
                                    =========             =========

        The Company's income tax expense differs from the amounts computed by
        applying the federal income tax statutory rates to income before income
        taxes. A reconciliation of the differences is as follows:

                                     Years Ended December 31,
                                 -------------------------------
                                    2002                 2001
                                 ---------            ----------

Income taxes at statutory rate   $ 259,900            $ (60,054)
Tax-free interest on loans          (3,882)              (3,506)
Surtax exemption                      --                (16,026)
State income tax (benefit)         (12,560)              (9,709)
Other items                         (9,172)               6,353
                                 ---------            ---------
Income tax expense (benefit)     $ 234,286            $ (82,942)
                                 =========            =========

                                      F-16
<PAGE>
NOTE 9. INCOME TAXES (Continued)

        The components of deferred income taxes are as follows:

                                           December 31,
                                       --------------------
                                         2002       2001
                                       --------   --------
Deferred tax assets:
   Loan loss reserves                  $624,835   $331,345
   Deferred loan fees                    75,322     26,727
   Preopening and organization costs     17,684     50,786
   Stock options                         19,079     19,079
   Deferred compensation                  6,113      1,223
   Other                                  6,792      2,676
                                       --------   --------
                                        749,825    431,836
                                       --------   --------
Deferred tax liabilities:
   Depreciation                         178,991    109,705
   Securities available-for-sale         36,684      2,078
                                       --------   --------
                                        215,675    111,783
                                       --------   --------

          Net deferred tax assets      $534,150   $320,053
                                       ========   ========

NOTE 10. EARNINGS (LOSSES) PER SHARE

        Presented below is a summary of the components used to calculate basic
        and diluted earnings (losses) per share.

                                                 Years Ended December 31,
                                                -------------------------
                                                   2002           2001
                                                -----------   -----------

Basic Earnings (Losses) Per Share:
Weighted average common shares outstanding        2,669,385     1,901,027
                                                ===========   ===========

Net income (loss)                               $   530,124   $   (93,687)
                                                ===========   ===========

Basic earnings (losses) per share               $       .20   $     (0.05)
                                                ===========   ===========

Diluted Earnings (Losses) Per Share:
Weighted average common shares outstanding        2,669,385     1,901,027
Net effect of the assumed exercise of stock
   options based on the treasury stock method
   using average market prices for the year          52,456          --
                                                -----------   -----------
Total weighted average common shares and
   common stock equivalents outstanding           2,721,841     1,901,027
                                                ===========   ===========

Net income (loss)                               $   530,124   $   (93,687)
                                                ===========   ===========

Diluted earnings (losses) per share             $       .19   $     (0.05)
                                                ===========   ===========

                                      F-17
<PAGE>
NOTE 11. COMMITMENTS AND CONTINGENCIES

        Loan Commitments

        The Company is 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 may include commitments to extend
        credit, standby letters of credit and credit card commitments. Such
        commitments involve, to varying degrees, elements of credit risk 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 financial instrument for commitments to extend
        credit and standby letters of credit is represented by the contractual
        amount of those instruments. The Company uses the same credit policies
        in making commitments and conditional obligations as it does for
        on-balance sheet instruments. A summary of the Company's commitments is
        as follows:

                                       December 31,
                               -------------------------
                                  2002           2001
                               -----------   -----------

Commitments to extend credit   $18,952,000    25,572,000
Letters of credit                1,583,000          --
Credit card commitments          3,358,000       329,000
                               -----------   -----------
                               $23,893,000    25,901,000
                               ===========   ===========

        Commitments to extend credit are agreements to lend to a customer as
        long as there is no violation of any condition established in the
        contract. Since many of the commitments are expected to expire without
        being drawn upon, the total commitment amounts do not necessarily
        represent future cash requirements.

        Credit card commitments are granted on an unsecured basis.

        Standby letters of credit are conditional commitments issued by the
        Company to guarantee the performance of a customer to a third party.
        Those letters of credit are primarily issued to support public and
        private borrowing arrangements. The credit risk involved in issuing
        letters of credit is essentially the same as that involved in extending
        loans to customers. Collateral is required in instances which the
        Company deems necessary.

        Contingencies

        In the normal course of business, the Company is involved in various
        legal proceedings. In the opinion of management, any liability resulting
        from such proceedings would not have a material effect on the Company's
        financial statements.


NOTE 12. CONCENTRATIONS OF CREDIT

        The Company originates primarily commercial, residential, and consumer
        loans to customers in Dawson County and surrounding counties. The
        ability of the majority of the Company's customers to honor their
        contractual loan obligations is dependent on the economy in the Dawson
        County area.

                                      F-18
<PAGE>
NOTE 12. CONCENTRATIONS OF CREDIT (Continued)

        Seventy percent of the Company's loan portfolio is concentrated in real
        estate loans, of which a substantial portion is secured by real estate
        in the Company's primary market area. Accordingly, the ultimate
        collectibility of the loan portfolio is susceptible to changes in market
        conditions in the Company's primary market area. The other significant
        concentrations of credit by type of loan are set forth in Note 3.

        The Company, as a matter of policy, does not generally extend credit to
        any single borrower or group of related borrowers in excess of 25% of
        statutory capital, or approximately $4,720,000.


NOTE 13. Regulatory Matters

        The Bank is subject to certain restrictions on the amount of dividends
        that may be declared without prior regulatory approval. At December 31,
        2002, approximately $218,000 of dividends could be paid without
        regulatory approval.

        The Company 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 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
        the assets, liabilities and certain off-balance-sheet items as
        calculated under regulatory accounting practices. Capital amounts and
        classification are also subject to qualitative judgments by the
        regulators about components, risk weightings and other factors. Prompt
        corrective provisions are not applicable to bank holding companies.

        Quantitative measures established by regulation to ensure capital
        adequacy require the Company and Bank to maintain minimum amounts and
        ratios of Total and Tier I capital to risk-weighted assets, as defined,
        and of Tier I capital to average assets, as defined. Management
        believes, as of December 31, 2002 and 2001, the Company and the Bank met
        all capital adequacy requirements to which they are subject.

        As of December 31, 2002, the most recent notification from the Federal
        Deposit Insurance Corporation categorized the Bank as well capitalized
        under the regulatory framework for prompt corrective action. To be
        categorized as well capitalized, the Bank must maintain minimum Total
        risk-based, Tier I risk-based, and Tier I leverage ratios as set forth
        in the following table. There are no conditions or events since that
        notification that management believes have changed the Bank's category.

                                      F-19
<PAGE>
NOTE 13. Regulatory Matters (Continued)

                  The Company and the Bank's actual capital amounts and ratios
                  are presented in the following table.

<TABLE>
<CAPTION>
                                                                                            To Be Well
                                                                      For Capital        Capitalized Under
                                                                       Adequacy         Prompt Corrective
                                                Actual                 Purposes         Action Provisions
                                         ----------------------   -------------------   -------------------
                                          Amount       Ratio       Amount      Ratio      Amount     Ratio
                                         ----------   ---------   ---------   -------   ---------   -------
                                                              (Dollars in Thousands)
                                         ------------------------------------------------------------------
<S>                                      <C>            <C>       <C>             <C>   <C>           <C>
December 31, 2002:
Total Capital to Risk Weighted Assets
   Consolidated                          $  22,038      14.67%    $ 12,018        8%    $    N/A       N/A
   Bank                                  $  21,132      14.08%    $ 12,008        8%    $ 15,010       10%
Tier I Capital to Risk Weighted Assets
   Consolidated                          $  20,159      13.42%    $  6,009        4%    $    N/A       N/A
   Bank                                  $  19,253      12.83%    $  6,004        4%    $  9,006        6%
Tier I Capital to Average Assets
   Consolidated                          $  20,159      11.42%    $  7,062        4%    $    N/A       N/A
   Bank                                  $  19,253      10.96%    $  7,025        4%    $  8,781        5%

December 31, 2001:
Total Capital to Risk Weighted Assets
   Consolidated                          $  14,428      12.09%    $  9,546        8%    $    N/A       N/A
   Bank                                  $  14,416      12.09%    $  9,543        8%    $ 11,929       10%
Tier I Capital to Risk Weighted Assets
   Consolidated                          $  13,179      11.04%    $  4,773        4%    $    N/A       N/A
   Bank                                  $  13,167      11.04%    $  4,772        4%    $  7,157        6%
Tier I Capital to Average Assets
   Consolidated                          $  13,179      10.78%    $  4,889        4%    $    N/A       N/A
   Bank                                  $  13,167      10.78%    $  4,887        4%    $  6,109        5%
</TABLE>

NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS

        The fair value of a financial instrument is the current amount that
        would be exchanged between willing parties, other than in a forced
        liquidation. Fair value is best determined based upon quoted market
        prices. However, in many instances, there are no quoted market prices
        for the Company's various financial instruments. In cases where quoted
        market prices are not available, fair values are based on estimates
        using present value or other valuation techniques. Those techniques are
        significantly affected by the assumptions used, including the discount
        rate and estimates of future cash flows. Accordingly, the fair value
        estimates may not be realized in an immediate settlement of the
        instrument. SFAS No. 107, Disclosures about Fair Values of Financial
        Instruments, excludes certain financial instruments and all nonfinancial
        instruments from its disclosure requirements. Accordingly, the aggregate
        fair value amounts presented may not necessarily represent the
        underlying fair value of the Company.

                                      F-20
<PAGE>
NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

        Cash, Due From Banks, Interest-Bearing Deposits in Banks and Federal
        Funds Sold: The carrying amounts of cash, due from banks,
        interest-bearing deposits in banks and federal funds sold approximate
        fair values.

        Securities: Fair values for securities are based on available quoted
        market prices. The carrying values of equity securities with no readily
        determinable fair value approximate fair values.

        Loans: For variable-rate loans that reprice frequently and have no
        significant change in credit risk, fair values are based on carrying
        values. For other loans, the fair values are estimated using discounted
        cash flow analyses, using interest rates currently being offered for
        loans with similar terms to borrowers with similar credit quality. Fair
        values for impaired loans are estimated using discounted cash flow
        analyses or underlying collateral values, where applicable.

        Deposits: The carrying amounts of demand deposits, savings deposits, and
        variable-rate certificates of deposit approximate their fair values.
        Fair values for fixed-rate certificates of deposit are estimated using a
        discounted cash flow calculation that applies interest rates currently
        being offered on certificates to a schedule of aggregated expected
        monthly maturities on time deposits.

        Other Borrowings: The fair values of the Company's fixed rate borrowings
        are estimated using discounted cash flow models based on the Company's
        incremental borrowing rate for similar types of borrowing arrangements.
        The carrying amounts of variable rate borrowings approximate their fair
        values.

        Accrued Interest: The carrying amounts of accrued interest approximate
        their fair values.

        Off-Balance-Sheet Instruments: Fair values of the Company's
        off-balance-sheet financial instruments are based on fees currently
        charged to enter into similar agreements. Since the majority of the
        Company's off-balance-sheet instruments consist of nonfee-producing,
        variable-rate commitments, the Company has determined they do not have a
        distinguishable fair value.

        The carrying amounts and estimated fair values of the Company's
        financial instruments are as follows:

<TABLE>
<CAPTION>
                                                                 December 31,
                                     ---------------------------------------------------------------------
                                                   2002                                2001
                                     ---------------------------------   ---------------------------------
                                          Carrying          Fair              Carrying           Fair
                                           Amount          Value               Amount            Value
                                     ----------------  ---------------   ---------------   ---------------
<S>                                  <C>               <C>               <C>               <C>
Financial assets:
   Cash, due from banks, interest-
      bearing deposits in banks,
      and funds sold                 $    10,790,660   $   10,790,660    $   20,097,382    $   20,097,382
   Securities available-for-sale          14,568,644       14,568,644           505,469           505,469
   Securities held-to-maturity               399,940          404,000           399,627           413,875
   Restricted equity securities              642,500          642,500           642,500           642,500
   Loans                                 140,285,090      143,148,200       111,493,321       112,895,768
   Accrued interest receivable             1,074,143        1,074,143           776,385           776,385
Financial liabilities:
   Deposits                              143,720,881      144,822,869       113,621,671       115,307,272
   Other borrowings                       10,277,917       10,250,000        12,850,000        12,850,000
   Accrued interest payable                  370,562          370,562           306,460           306,460
</TABLE>

                                      F-21
<PAGE>
NOTE 15. SUPPLEMENTAL SEGMENT INFORMA

        The Company has three reportable segments: commercial banking,
        residential mortgage lending and origination, and other financial
        services. The commercial banking segment provides traditional banking
        services offered through the Bank. The residential mortgage lending and
        origination segment provides these services offered through CRM. The
        financial services segment provides these services through CFS.

        The accounting policies of the segments are the same as those described
        in the summary of significant accounting policies. The Company evaluates
        performance based on profit and loss from operations before income taxes
        not including nonrecurring gains and losses.

                  The Company accounts for intersegment revenues and expenses as
                  if the revenue/expense transactions were to third parties,
                  that is, at current market prices.

                  The Company's reportable segments are strategic business units
                  that offer different products and services and are managed
                  separately because of these differing products and services.

<TABLE>
<CAPTION>
                                                                  INDUSTRY SEGMENTS
                                     ---------------------------------------------------------------------------------
        For the Year Ended            Commercial                                All
        December 31, 2002              Banking       Mortgage    Financial     Other      Eliminations      Total
-----------------------------------  -------------  ------------ ----------- -----------  ------------  --------------

<S>                                 <C>               <C>        <C>         <C>           <C>          <C>
Interest income                     $ 10,638,245      $     98   $       -   $  15,979     $     (98)   $ 10,654,224
Interest expense                       4,455,876             -           -           -           (98)      4,455,778
Net interest income                    6,182,369            98           -      15,979             -       6,198,446
Intersegment net interest
    income (expense)                         (98)           98           -           -             -               -
Other revenue from external
    sources                              757,887       205,860       6,112         943             -         970,802
Depreciation                             353,126             -           -           -             -         353,126
Provision for loan losses              1,019,658             -           -           -             -       1,019,658
Segment profit (loss)                    616,040       205,571       5,521     (62,722)            -         764,410
Segment assets                       175,316,393       212,637      12,902     815,290      (944,515)    175,412,707
Expenditures for premises and
    equipment                          1,359,644             -           -           -             -       1,359,644
</TABLE>

                                      F-22
<PAGE>
NOTE 15. SUPPLEMENTAL SEGMENT INFORMATION (Continued)

<TABLE>
<CAPTION>
                                                               INDUSTRY SEGMENTS
                               -----------------------------------------------------------------------------------
     For the Year Ended         Commercial                                   All
      December 31, 2001           Banking       Mortgage     Financial      Other     Eliminations       Total
------------------------------ --------------  -----------  -----------  ----------  -------------  --------------

<S>                            <C>             <C>          <C>          <C>           <C>          <C>
Interest income                $  8,500,446    $     536    $     -      $    -        $    (536)   $  8,500,446
Interest expense                  4,360,200          -            -         1,004           (536)      4,360,668
Net interest income (expense)     4,140,246          536          -        (1,004)            -        4,139,778
Intersegment net interest
    income (expense)                   (536)         536          -           -               -              -
Other revenue from external
    sources                         514,074       46,218        4,953         -               -          565,245
Depreciation                        251,826          -            -           -               -          251,826
Provision for loan losses           568,279          -            -           -               -          568,279
Segment profit (loss)              (149,318)      46,754       (9,610)     (64,455)           -         (176,629)
Segment assets                  140,095,736       52,066        7,381       67,161       (87,220)    140,135,124
Expenditures for premises and
    equipment                     1,679,315          -            -           -               -        1,679,315
</TABLE>

NOTE 16. SUPPLEMENTARY FINANCIAL DATA

        Components of other income and expenses in excess of 1% of total revenue
        are as follows:

                                                   Years Ended December 31,
                                                 --------------------------
                                                    2002            2001
                                                 ---------       ---------
Other income:
   Mortgage loan origination fees                $ 205,860       $  64,947
Other expenses:
   Legal and professional                          175,107         194,601
   Stationery and supplies                         196,634         211,104
   Data processing                                 317,806         237,568

                                      F-23
<PAGE>
NOTE 17. PARENT COMPANY FINANCIAL INFORMATION

        The following information presents the condensed balance sheets,
        statements of operations and cash flows of Chestatee Bancshares, Inc. as
        of and for the years ended December 31, 2002 and 2001:

                            CONDENSED BALANCE SHEETS

                                                        2002           2001
                                                    ------------   -----------


Assets
  Cash                                               $   780,828   $    21,308
  Investment in subsidiaries                          19,460,339    13,229,374
  Other assets                                            61,600        45,853
                                                     -----------   -----------

        Total assets                                 $20,302,767   $13,296,535
                                                     ===========   ===========

Liabilities, other                                   $    83,530   $   113,554

Stockholders' equity                                  20,219,237    13,182,981
                                                     -----------   -----------

        Total liabilities and stockholders' equity   $20,302,767   $13,296,535
                                                     ===========   ===========


                       CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                          2002         2001
                                                                      ----------    ---------

<S>                                                                    <C>          <C>
 Income:
     Interest Income                                                   $  15,979    $    --
   Dividends from subsidiary                                              45,000      145,000
   Other income                                                              943         --
                                                                       ---------    ---------
               Total income                                               61,922      145,000
                                                                       ---------    ---------

Expenses:
   Employee benefits                                                        --         29,460
   Interest                                                                 --          1,004
   Other                                                                  79,644       33,991
                                                                       ---------    ---------
               Total expenses                                             79,644       64,455
                                                                       ---------    ---------

               Income (loss) before income tax benefits and equity
                 in undistributed income (distributions in excess
                 of loss) of subsidiaries                                (17,722)      80,545

Income tax benefits                                                      (23,669)     (16,805)
                                                                       ---------    ---------

               Income (loss) before equity in undistributed
                 income (distributions in excess of
                 loss) of subsidiaries                                     5,947       97,350

Equity in undistributed income (distributions in excess subsidiaries
   of loss) of subsidiaries                                              524,177     (191,037)
                                                                       ---------    ---------

               Net income (loss)                                       $ 530,124    $ (93,687)
                                                                       =========    =========
</TABLE>

                                      F-24
<PAGE>



NOTE 17. PARENT COMPANY FINANCIAL INFORMATION (Continued)

                       CONDENSED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                   2002            2001
                                                                ----------     -----------

<S>                                                             <C>            <C>
OPERATING ACTIVITIES
  Net income (loss)                                             $   530,124    $   (93,687)
  Adjustments to reconcile net income (loss) to
     net cash provided by (used in) operating activities:
        (Undistributed income) distributions in excess
              of loss of subsidiaries                              (524,177)       191,037
        Net other operating activities                              (15,746)            (3)
                                                                -----------    -----------

          Net cash provided by (used in) operating activities        (9,799)        97,347
                                                                -----------    -----------

INVESTING ACTIVITIES
  Investment in subsidiaries                                     (5,650,000)    (3,780,000)
                                                                -----------    -----------

          Net cash used in investing activities                  (5,650,000)    (3,780,000)
                                                                -----------    -----------

FINANCING ACTIVITIES
  Proceeds from (repayment of) other borrowings                        --          (50,000)
  Proceeds from sale of common stock                              6,419,319      3,750,000
                                                                -----------    -----------

          Net cash provided by financing activities               6,419,319      3,700,000
                                                                -----------    -----------

Net increase in cash                                                759,520         17,347

Cash at beginning of year                                            21,308          3,961
                                                                -----------    -----------

Cash at end of year                                             $   780,828    $    21,308
                                                                ===========    ===========
</TABLE>

NOTE 18. STOCK OFFERING

The Company is offering to sell a maximum of 250,000 shares of its common stock
at a price of $10.00 per share. As of December 31, 2002, 75,690 shares of common
stock from this offering have been sold and issued.

                                      F-25
<PAGE>
ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
------------------------------------------------------------------------
         FINANCIAL DISCLOSURE
         --------------------

         The Company and the Bank have had no changes in or disagreements with
our independent auditors, Mauldin & Jenkins, LLC, during our two most recent
fiscal years or any period since that time. Chestatee Financial and Chestatee
Mortgage have had no changes in or disagreements with its independent auditors,
Mauldin & Jenkins, LLC, since their inception.


                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
--------------------------------------------------------------------------------
        WITH SECTION 16(a) OF THE  EXCHANGE ACT
        -------------------------  ------------

         The following paragraphs set forth for each director, principal officer
and significant employee of the Company:

    o   the name of each director of the Company;
    o   the year he was first elected a director;
    o   a description of his position and offices with the Company (other than
        as a director), if any; and
    o   a brief description of his principal occupation and business experience
        during at least the last five years;

The paragraphs may provide certain other information about each director,
principal officer and significant employee of the Company as appropriate.

         Each director of the Company also serves as a director of the Bank,
Chestatee Financial and Chestatee Mortgage. Except as otherwise disclosed, there
are no family relationships between any of our directors or executive officers,
and no director is a member of the board of directors of a publicly held company
required to file reports with the Securities and Exchange Commission. Our
directors are elected by a majority of votes cast at the annual meeting of the
shareholders and serve until the next annual meeting of shareholders and until a
successor is duly elected and qualified.

Directors
---------

         Ralph Millard Bowen, born April 6, 1942, is the owner of Bowen & Bowen
Construction. He is a member of the Board of Directors of the Georgia Housing
Financial Authority and the Georgia Department of Community Affairs. He is a
principal of several real estate related business entities. He attended the
University of Georgia and Reinhardt College. Mr. Bowen has served as a director
of the Company and the Bank since their inception.

                                       40
<PAGE>
         Marcus Calvin Byrd, Jr., born June 1, 1953, is owner of Byrd's
Mini-Storage and Byrd's U-Haul and Byrd's Intent Land Fill, Inc. He is a member
of the Executive Board of the Boy Scouts of America. Mr. Byrd has served as a
director of the Company and the Bank since their inception.

         Glennon C. Grogan, born July 20, 1939, is President of Grogan & Co.,
Inc. (25% owner) engaged in commercial sanitation services and sawdust sales. He
is the Secretary/Treasurer of Etowah Environment Group, Inc. (50% owner)
involved in waste management. He is a principal of several real estate ventures.
Mr. Grogan has served as a director of the Company and the Bank since their
inception. Mr. Grogan's brother, James H. Grogan, also serves as a director of
the Company and the Bank.

         James H. Grogan, born July 1, 1943, is Corporate Secretary/Treasurer of
Grogan & Co., Inc. (50% owner) engaged in commercial sanitation services and
sawdust sales. He is the President of Etowah Environmental Group, Inc. (50%
owner) engaged in waste management. He is a principal of several real estate
ventures. Mr. Grogan has served as a director of the Company and the Bank since
their inception. Mr. Grogan's brother, Glennon C. Grogan, is also a director of
the Company and the Bank.

         Andrew M. ("Jack") Head, born May 22, 1953, is the past Chairman and
Chief Executive Officer of Head Distributing Company (wholesale groceries). Mr.
Head is in an advisory capacity with Fleming Company and is involved as an owner
or director or both in the wholesale lumber and restaurant franchise businesses.
He is a graduate of the University of Georgia. Mr. Head has served as a director
of the Company and the Bank since their inception.

         John Philip Hester, Sr., born January 23, 1953, is the President and
Chief Executive Officer of the Bank, Chestatee Financial and Chestatee Mortgage
in addition to serving as a member of the Board of Directors. He served as
President, Chief Executive Officer, and Director of the Waycross Company & Trust
from 1987 to 1990 and has been engaged in the Banking business in various
capacities since 1975. He was President, Chief Executive Officer, and Director
of the First Community Bank of Dawsonville until his resignation to participate
in organization of the Company. He is a graduate of the University of Georgia
and has completed courses at the School of Banking of the South (Louisiana State
University) and the University of Oklahoma Commercial Lending School. Mr. Hester
has served as a director of the Company and the Bank since their inception.

         Bruce Todd Howard, born March 17, 1967, is President of BTH Investment
and is the President and co-owner of The Lumber Depot d/b/a Coal Mountain
Builders Supply. He is a member of the Gilmer County Homebuilders Association.
Mr. Howard has served as a director of the Company and the Bank since their
inception.

         David E. Johnson, born May 9, 1942, is President and owner of Sleeveco,
Inc. (manufacturer of plastic packaging materials), which was a finalist in
"Georgia Family Business of the Year 2002." Mr. Johnson has served as a director
of the Company and the Bank since their inception. Mr. Johnson was the 2001
Businessman of the Year for Dawson County. In 2002, Mr. Johnson was elected as
Chairman of the Board of Directors to succeed Mr. Wallace.

                                       41
<PAGE>
         William Alan McRae, born July 22, 1952, is an owner of McRae & Stolz,
Inc., a real estate development firm. He received his undergraduate degree from
the University of Georgia and a masters degree from the University of Tennessee.
Mr. McRae has served as a director of the Company and the Bank since their
inception.

         Kim M. Mills, born February 11, 1962, is the principal of Mills Fuel
Service, Inc. He is a member of the Dawson County Rotary Club. Mr. Mills has
served as a director since December 1998.

         James Wyman Walden, born January 6, 1948, is co-owner of C&W Ace
Hardware, Inc. He is a member of the Board of Directors of the Dahlonega Rotary
Club and he was the 1996 Chairman of the Dahlonega Lumpkin County Chamber of
Commerce. Mr. Walden has served as a director of the Company and the Bank since
their inception.

         Russell M. Wallace, born June 3, 1954, is a founding partner of The
Wallace Investment Group, LLC, Tri-Vista Development Group, LLC, and Wallace
Landscape Group, LLC. He is President of The Cupboard, LLC. He is a member of
the Dahlonega Baptist Church, Dawson County Historical Society, Dawson County
Council of the Arts and serves on the Board of Directors of Georgia Racing Hall
of Fame. He attended the University of Georgia. Mr. Wallace resigned as Chairman
of the Board of Directors of the Company and the Bank in 2002 but continues to
serve as a director of the Company and the Bank as he has since their inception.

         During the previous five years, no director of the Company was the
subject of a legal proceeding (as defined below) that is material to an
evaluation of the ability or integrity of the director. "Legal proceeding"
includes:

     o    any bankruptcy petition filed by or against any business of which such
          person was a general partner or executive officer either at the time
          of bankruptcy or within two years prior to that time;
     o    any conviction in a criminal proceeding or being subject to a pending
          criminal proceeding (excluding traffic violations and other minor
          offenses);
     o    any order, judgment or decree of any court of competent jurisdiction,
          permanently or temporarily enjoining, barring, suspending or otherwise
          limiting his involvement in any type of business, securities or
          banking activities; and
     o    any finding by a court of competent jurisdiction (in a civil action),
          the Securities and Exchange Commission or the Commodity Futures
          Trading Commission to have violated a federal or state securities or
          commodities law, such judgment having not been reversed, suspended or
          vacated.

                                       42
<PAGE>
Executive Officers

         John Philip Hester, Sr., (see paragraph in preceding section regarding
directors). Mr. Hester serves as the President and Chief Executive Officer of
the Company, the Bank, Chestatee Financial and Chestatee Mortgage. He has served
in those capacities since their inception.

         James M. Curry, born November 2, 1962, serves as Executive
Vice-President of the Bank. Mr. Curry previously was employed by SunTrust Bank,
N.A. from 1985 until joining the Bank in December 2001. He attended the
University of Georgia and has completed courses at the School of Banking of the
South (Louisiana State University).

         Deborah F. McLeod, born July 23, 1959, serves as Senior Vice-President
and Chief Financial Officer of the Company and the Bank. Ms. McLeod previously
was employed by Citizens Bank of Forsyth, from December 17, 2001 until joining
the Company in June 2002. Prior to that time, Ms. McLeod was employed by B B & T
following its acquisition of Century South since August 1990. She graduated from
North Georgia College in 1990.

         During the previous five years, none of our executive officers was the
subject of a legal proceeding (as defined above) that is material to an
evaluation of the ability or integrity of the executive officer.

Compliance with Section 16(a) of the Exchange Act
-------------------------------------------------

         Based solely upon a review of Forms 3, 4 and 5, and amendments thereto,
furnished to the Company pursuant to Rule 16a-3(d) during the year ended
December 31, 2002, no person, who at any time during the year was a director,
executive officer or beneficial owner of more than 10% of any class of our
equity securities, failed to file on a timely basis reports required by Section
16(a) of the Exchange Act.

                                       43
<PAGE>
ITEM 10.  EXECUTIVE COMPENSATION

         The following table sets forth the cash and cash equivalent forms of
compensation received by the chief executive officer of the Company and its
named executive officers in the fiscal year ended December 31, 2002, and all
cash and cash equivalent forms of compensation received by the chief executive
officer and all named executive officers of the Company as a group.

<TABLE>
<CAPTION>
                                                      SUMMARY COMPENSATION TABLE

                                                                                                       LONG-TERM COMPENSATION

                                                                                                        AWARDS        PAYOUTS
  (a)                   (b)        (c)             (d)           (e)           (f)           (g)         (h)            (i)

NAME AND                                                    OTHER ANNUAL    RESTRICTED      OPTION       LTIP          OTHER
PRINCIPAL POSITION      YEAR       SALARY         BONUS     COMPENSATION   STOCK AWARDS      SARs      PAYOUTS      COMPENSATION

<S>                     <C>       <C>           <C>              <C>            <C>        <C>            <C>         <C>
J. Philip Hester, Sr    2002      $150,525      $  6,272         --             --           --           --          $ 45,2491
CEO, President,         2001      $143,325      $  5,972         --             --         42,000         --          $ 18,3022
Director                2000      $136,500      $  5,688         --             --          8,000         --          $ 61,6333

James M. Curry          2002      $100,000      $  4,167         --             --         15,000         --          $ 15,4171
Executive VP            2001           N/A         $ N/A         N/A            N/A           N/A         N/A         N/A
                        2000           N/A         $ N/A         N/A            N/A           N/A         N/A         N/A

Deborah F. McLeod       2002      $100,000      $  4,167         --             --         10,000         --          $ 10,4061
CFO, Senior VP          2001           N/A         $ N/A         N/A            N/A           N/A         N/A         N/A
                        2000           N/A         $ N/A         N/A            N/A           N/A         N/A         N/A
</TABLE>
1          The Company has accrued a deferred compensation expense under the
defined contribution plan totaling $12,960, accrued a bonus totaling $27,847,
and an automobile allowance totaling $2,938 and contributed to its 401(k) plan
for eligible employees $4,442 for Mr. Hester during the fiscal year ended
December 31, 2002. The Company has accrued a bonus totaling $15,417 and $10,406
for Mr. Curry and Ms. McLeod, respectively.

2          The Company has accrued a deferred compensation expense under the
defined contribution plan totaling $3,240, a bonus totaling $7,500, and an
automobile allowance totaling $2,938 and contributed to its 401(k) plan for
eligible employees $4,624 for Mr. Hester during the fiscal year ended December
31, 2001.

3           The Company has accrued a bonus totaling $54,600 and an automobile
allowance totaling $2,938 and contributed to its 401(k) plan for eligible
employees $4,095 for Mr. Hester during the fiscal year ended December 31, 2000.

                                       44
<PAGE>

         The following table sets forth the individual grants of stock options
made during the last fiscal year to each named executive officer.

                     OPTIONS/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                       NUMBER OF                   PERCENT OF TOTAL
                       SECURITIES UNDERLYING       OPTIONS/SARs GRANTED                               EXPIRATION
NAME                   OPTIONS/SARs GRANTED        IN FISCAL YEAR             EXERCISE PRICE          DATE

<S>                        <C>                           <C>                      <C>                   <C>
James M. Curry             15,000                        37%                      $10.00                1/1/12


Deborah F. McLeod          10,000                        24%                      $10.00                7/16/12
</TABLE>

                                       45
<PAGE>
Compensation of Directors
-------------------------

         The Company and the Bank pay each director $300 for each Board of
Directors meeting attended. Members of the various committees are also paid $50
each month for their service on the committee (except for the members of the
Loan Committee who are each paid $150 each month for their service). The
directors are also entitled to participate in the 2000 Non-Employee Stock Option
Plan approved by our shareholders at our last annual meeting. Directors may also
be reimbursed from time to time for expenses related to service as a member of
the Board of Directors.

         The directors are also entitled to participate in the 2000 Non-Employee
Stock Option Plan approved by our shareholders at our last annual meeting. The
Non-Employee Plan was adopted by the Board of Directors of the Company at its
meeting on October 17, 2000 and became effective when approved by the
affirmative vote of a majority of the shares of the common stock represented at
the Annual Meeting of Shareholders on April 17, 2001. The Non-Employee Plan
terminates automatically 10 years after its adoption by the Board of Directors
and may be terminated on any earlier date at the discretion of the Board of
Directors. The Company has authorized and reserved for issuance upon the
exercise of options pursuant to the Non-Employee Plan an aggregate of 200,000
shares of common stock. If any option is canceled, expires or terminates without
the respective director exercising it in full, options with respect to those
unpurchased shares of common stock may be granted to that same director or to
another eligible individual or individuals under the terms of this Non-Employee
Plan.

         Each director (other than Mr. Hester, an employee of the Company and
the Bank) was granted an option to acquire 15,000 shares of our common stock in
the year ended December 31, 2000 and 1,000 shares of our common stock each in
the years ended December 31, 2001 and December 31, 2002. The options granted in
2000 have an exercise price of $8.00 per share and can be exercised at any time
prior to October 17, 2010. The options granted in 2001 and 2002 have an exercise
price of $10.00 per share and can be exercised at any time prior to January 1,
2011 and 2012, respectively. No director has as yet exercised his option. In
addition, each director will be granted as of the first business day of each
calendar year after December 31, 2002 an option to purchase an additional 1,000
shares of our common stock at an exercise price of no less than the average
market price of the common stock on the date of the grant and exercisable within
10 years from the date of the grant.

Employment Agreements and Change in Control Agreements
------------------------------------------------------

         J. Philip Hester, Sr., President and Chief Executive Officer, as well
as a director, of the Company, the Bank, Chestatee Financial and Chestatee
Mortgage, entered into an Amended and Restated Employment Agreement with the
Bank effective September 17, 2001 for a term ending December 31, 2004, with
automatic renewals of one year each absent termination for death, disability,
cause, termination without cause or voluntary resignation. Mr. Hester's base
salary from the effective date is $143,325, increasing 5% annually beginning
January 1, 2002. In addition to the base salary, Mr. Hester will receive a
performance bonus based upon a criteria established by the Compensation

                                       46
<PAGE>
Committee of the Board of Directors during the last calendar quarter of each
fiscal year for the subsequent year. The Board of Directors approved retirement
benefits for Mr. Hester funded through the purchase of life insurance policies
on his life. The balance of the policy cash surrender values included in other
assets at December 31, 2002 is $628,910 and the income recognized on the
policies amounted to $30,549 for the year ended December 31, 2002. The deferred
compensation liability was $16,200 and expense recognized was $12,960 at and for
the year ended December 31, 2002. Mr. Hester is also entitled to certain
additional benefits, including an automobile allowance, a $1 million term life
insurance policy, annual paid vacation, healthcare insurance and disability
insurance.

         As a condition of employment, Mr. Hester was required to purchase at
least 10,000 shares of the Bank's common stock. The shares were converted to
shares of the Company by virtue of the merger of the Company and the Bank on
March 31, 2000. Mr. Hester was granted an option to purchase 42,000 shares of
our common stock. The exercise price of the options is $8 per share, the fair
market value per share of our common stock at the time the options were granted,
payable in cash. The option expires ten years after the date earned. As of
December 31, 2002, Mr. Hester had already earned options to acquire up to 16,000
shares of the common stock under his original employment agreement after giving
effect to the two-for-one stock split in October 2000. A liability and an
expense of $33,760 was recorded for the year ended December 31, 2001 to reflect
the difference between the grant price of the options and the fair value of our
common stock. These options have a weighted-average exercise price of $4.89 and
expire in ten years. The weighted-average fair value of the options earned was
$7.00.

         The Amended and Restated Employment Agreement contains a provision for
a change in control of the Company or the Bank. In such event, Mr. Hester will
be entitled to receive his base salary for the remainder of the term but not
less than 18 months. There is a change in control for purposes of the agreement
if either any person or group acting in concert acquires 50% or more of the
outstanding shares of our common stock or we sell substantially all of our
assets.

Employee Stock Option Plans
---------------------------

         The 2000 Employee Stock Option Plan was adopted by the Board of
Directors of the Company at our meeting on October 17, 2000. The Employee Plan
became effective when approved by the affirmative vote of a majority of the
shares of our common stock represented at the Annual Meeting of Shareholders on
April 17, 2001. The Employee Plan terminates automatically 10 years after its
adoption by the Board of Directors and may be terminated on any earlier date at
the discretion of the Board of Directors.

         The Board of Directors has the authority to determine which employees
will receive a grant, the time or times when such grant will be made, whether an
incentive stock option or a nonstatutory option will be granted, and the number
of shares of common stock which may be issued under each option. The aggregate
number of shares of common stock that may be issued under the Employee Plan
(upon exercise of options) cannot generally exceed 100,000 shares. The number of
shares that are subject to options at any time under the Employee Plan cannot
exceed the number of shares that then remain available for issuance under the

                                       47
<PAGE>
Employee Plan. In the event that any outstanding option for any reason expires
or is canceled or otherwise terminated, the shares allocable to the unexercised
portion of such option shall again be available for the purposes of the Employee
Plan. Shares issued under the Employee Plan that are reacquired by us pursuant
to any forfeiture provision, right of repurchase or right of first refusal, such
shares will again generally be available for the purposes of the Employee Plan.
Other than the 15,000 shares granted to Mr. Curry and the 10,000 shares granted
to Ms. McLeod under the Employee Plan, no other named executive officer has been
granted options under the plan for the year ended December 31, 2002.


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
-----------------------------------------------------------------------

         The following table sets forth certain information with respect to the
beneficial ownership as of February 28, 2003, of shares of our common stock by
the following persons:

     o    each person known by us to be the beneficial owner of more than five
          percent of our outstanding common stock,
     o    each of our directors and named executive officers, and
     o    all our directors and executive officers as a group, and the
          percentage of the outstanding shares of common stock represented
          thereby.

Except as noted below, we believe that each of the persons listed has sole
investment and voting power with respect to the shares included in the table.


Name and Address                   Amount and Nature of         Percent of Class
of Beneficial Owner                Beneficial Ownership
-------------------                --------------------         ----------------

Ralph Millard Bowen                      128,196 4                    4.14%
5072 Bristol Industrial Way
Buford, Georgia  30518

Marcus C. Byrd, Jr.                      136,192 5                    4.39%
1661 Highway 9 South
Dawsonville, Georgia  30534

----------
1     Includes 17,000 shares available upon exercise of his options but excludes
20,000 shares owned by Mr. Bowen's spouse, 3,000 shares owned each by Mr.
Bowen's two adult daughters, and 2,000 shares owned each by Mr. Bowen's three
adult sons and another daughter, for which he disclaims beneficial ownership

2     Includes 17,000 shares available upon exercise of his options and 20,000
shares held in trust by Mr. Byrd in his individual retirement account and 7,092
shares held by an affiliate, Byrd Howard Properties. The figure excludes 2,000
shares owned by Mr. Byrd's spouse for which he disclaims beneficial ownership,
but includes 2,100 shares held as custodian for his son and daughter.

                                       48
<PAGE>
Name and Address                   Amount and Nature of         Percent of Class
of Beneficial Owner                Beneficial Ownership
-------------------                --------------------         ----------------

James M. Curry                          5,000 6                      0.16%
312 Point Olympus Drive
Gainesville, Georgia  30506

Glennon C. Grogan                      78,126 7                      2.52%
6060 Jewell Bennett Road
Dawsonville, Georgia  30534

James H. Grogan                        81,206 8                      2.62%
4215 Dahlonega Highway
Cumming, Georgia  30130

Andrew M. Head                        118,646 9                      3.83%
2928 Ridgewood Road
Atlanta, Georgia  30327

J. Philip Hester, Sr.                  76,763 5                      2.49%
32 Lakeshore Circle
Dawsonville, Georgia  30534

Bruce T. Howard                       110,092 6                      3.55%
5120 Christopher Hollow
Alpharetta, Georgia  30004

David E. Johnson                      176,446 7                      5.69%
260 Gold Leaf Terrace
Dawsonville, Georgia  30534
----------
1      Mr. Curry's shares are available upon exercise of his options.

2      Includes 17,000 shares available upon exercise of his options but
excludes 415 shares owned jointly by Mr. Grogan and his son, and 415 shares
owned jointly by Mr. Grogan and his daughter.

3      Includes 17,000 shares available upon exercise of his options and 3,000
shares owned jointly by Mr. Grogan and his spouse.

4      Includes 17,000 shares available upon exercise of his options and 200
shares owned by his son but excludes 2,000 shares owned by Mr. Head's spouse and
200 shares owned each by his two adult daughters, for which Mr. Head disclaims
beneficial ownership.

5      Includes 44,000 shares available upon exercise of his options as well as
29,870 shares held in an individual retirement account for his benefit and 2,063
shares held jointly with Mr. Hester's spouse.

6      Includes 17,000 shares available upon exercise of his options as well as
50,000 shares held jointly with his spouse, 36,000 shares held as custodian for
the benefit of his minor children and 7,092 shares held by an affiliate, Byrd
Howard Properties.

7      Includes 17,000 shares available upon exercise of his options as well as
88,000 shares held in an individual retirement account.

                                       49
<PAGE>
Name and Address                   Amount and Nature of         Percent of Class
of Beneficial Owner                Beneficial Ownership
-------------------                --------------------         ----------------

William A. McRae                         100,946 1                    3.26%
499 Johnson Ferry Road
Atlanta, Georgia  30328

Deborah F. McLeod                          1,600                      0.05%
33 Sheep Wallow Road
Dahlonega, Georgia  30533

Kim M. Mills                              41,446 2                    1.34%
57 Brights Way
Dawsonville, Georgia  30534

James W. Walden                           48,196 3                    1.55%
262 Jack Walker Road
Dahlonega, Georgia  30533

Russell M. Wallace                       154,196                      4.97%
77 Old River Road
Dahlonega, Georgia  30533

All executives officers and directors  1,257,051                     40.55%
as a group (14 persons)

To the knowledge of the Company, no other persons own more than 5% of the common
stock. Each of the persons listed in the above table has the right to acquire
beneficial ownership of shares of the Company as provided in each footnote
within sixty days of December 31, 2002 such shares included in his beneficial
ownership pursuant to Rule 13d-3(d)(1) of the Securities Exchange Act of 1934.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

         The Company has had and expects to have in the future banking
transactions in the ordinary course of its business with its directors,
principal officers, principal shareholders, certain relatives of such persons,
and their associates including corporations, partnerships, and other
organizations in which such directors and officers have an interest, on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with unrelated parties. Such
transactions have not involved more than the normal risk of collectibility or
presented other unfavorable features.

----------
1      Includes 17,000 shares available upon exercise of his options as well as
12,500 shares held in the McRae and Stolz Money Purchase Pension Plan.

2      Includes 17,000 shares available upon exercise of his options, 1,050
shares held jointly with a family member, and 1,000 shares owned by his minor
daughter but excludes 1,000 shares owned each by Ms. Mills' two adult daughters,
for which Ms. Mills disclaims beneficial ownership.

3      Includes 17,000 shares available upon exercise of his options but
excludes 200 shares owned by Mr. Walden's adult daughter for which he disclaims
beneficial ownership.

                                       50
<PAGE>
         As of December 31, 2002, we had outstanding loans to certain of our
directors, executive officers and relatives of such persons and their
associates, which aggregated approximately $16,051,000. This represented
approximately 79% of our $20,219,000 equity capital accounts. The Company
entered into a lease agreement for the lease of facilities for the Bank with BDR
Enterprises, Inc., an entity owned by Mr. Wallace, in November 2000. The lease
payments total approximately $46,000 annually. That lease expired in February
2002 and was not renewed. The Bank has also entered an agreement for the lease
of facilities adjacent to the Bank with CSB Partners, LLP, an entity owned by
all of our directors. The lease payments total approximately $40,500 annually.
The initial term expires in December 2003. We have not otherwise transacted
within the previous two years, nor do we expect to transact in the immediate
future, any business with any director, principal officer, or principal
shareholder which exceeds 10% of our equity capital accounts or $5 million,
whichever is less.


ITEM 14.  CONTROLS AND PROCEDURES
---------------------------------

         Based upon an evaluation of our disclosure controls and procedures
within ninety days prior to the filing of this annual report pursuant to Rule
13a-14 of the Exchange Act, under the supervision and with the participation of
management, our President and Chief Financial Officer have concluded that the
Company's disclosure controls and procedures are effective in timely alerting
them to material information relating to the Company required to be included in
the Company's Exchange Act filings. There have been no significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation.

                                       51
<PAGE>
                                     PART IV

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K
------------------------------------------

Index to Exhibits
-----------------

Number            Description                                             Page
------            -----------                                             ----

   3.1            Articles of Incorporation
   3.2            Bylaws
  10.2            Data Processing Contract
  10.3            International Services Agreement
  10.4            Employment Agreement
  10.5            Lease Agreement
  10.6            2000 Non-Employee Stock Option Plan
  10.7            2000 Employee Stock Option Plan
  10.8            Form of Non-Employee Stock Option Agreement
  10.9            Employee Stock Option Agreement
  10.10           Broker's Payee Contract
  10.11           Securities Brokerage Agreement
  10.12           Career Agency Banking Contract
  10.13           Subscription Agreement
  10.14           Operating Agreement
  10.15           Lease Agreement
  10.16           Lease Agreement
  11              Statement re: Computation of Per Share Earnings
  21              Subsidiaries of the Registrant
  23.1            Consent of Mauldin & Jenkins, LLC
  24.1            Power of Attorney
  99.1            Certification

Description of Exhibits
-----------------------

     3.1         Articles of Incorporation of Chestatee Bancshares, Inc. (1)
     3.2         Bylaws of Chestatee Bancshares, Inc. (1)
    10.2         Data  Processing  Contract between Chestatee State Bank and its
                 successors, dated January 20, 1998 (2)
    10.3         International Services Agreement between Chestatee State Bank
                 and The Bankers Bank, dated April, 27, 1998 (2)
    10.4         Amended and Restated Employment Agreement dated September 17,
                 2001 between J. Philip Hester, Sr. and Chestatee Bancshares and
                 Chestatee State Bank (2)
    10.5         Lease  Agreement between BDR Properties, LLC and Chestatee
                 State Bank, dated November 1, 2000 (1)
    10.6         2000 Non-Employee Stock Option Plan (2)
    10.7         2000 Employee Stock Option Plan (2)

                                       52
<PAGE>
    10.8         Form of Non-Employee Stock Option Agreement (2)
    10.9         Employee Stock Option Agreement between J.Philip Hester, Sr.and
                 Chestatee Bancshares and Chestatee State Bank(2)
    10.10        Broker's Payee Contract between MML Insurance Agency, Inc. and
                 Chestatee Financial, Inc. (4)
    10.11        Securities Brokerage Agreement between Chestatee Financial,
                 Inc. and Agreement with MML Investors Services, Inc. (4)
    10.12        Career Agency System  Banking  Contract  between  Chestatee
                 Bancshares, Inc., Stephen Squires, and the Massachusetts Mutual
                 Life Insurance Company (4)
    10.13        Subscription Agreement between Chestatee Residential Mortgage,
                 Inc. and Guaranty Mortgage Services, LLC, Guaranty First
                 Mortgage,  LLC and Shelter Mortgage Corporation (4)
    10.14        Operating Agreement between Chestatee Residential Mortgage,
                 Inc. and Guaranty Mortgage Services, LLC, Guaranty First
                 Mortgage, LLC and Shelter Mortgage Corporation (4)
    10.15        Lease between Chestatee State Bank and Norman Adams dated
                 July 12, 2001 (4)
    10.16        Lease Agreement between Chestatee State Bank and CSB Partners,
                 LLP dated January 1, 2001 (4)
    11           Statement re: Computation of Per Share Earnings
    21           Subsidiaries of the Registrant(3)
    23.1         Consent of Mauldin & Jenkins, LLC
    24.1         Power of Attorney dated March 28, 2003  executed by officers
                 and a majority of directors of Chestatee State Bank
    99.1         Certification Pursuant to 18 U.S.C. Section  1350, as Adopted
                 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1)  Incorporated by reference to the Company's Annual Report on Form 10-KSB
     filed March 29, 2000.
(2)  Incorporated by reference to the Company's Registration Statement on Form
     SB-2 filed with the SEC on October 16, 2001.
(3)  Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
     filed May 14, 2001. (4) Incorporated by reference to the Company's Annual
     Report on Form 10-KSB filed March 29, 2002.

Reports On Form 8-K
-------------------

         There was no Form 8-K filing during the last quarter of the year ended
December 31, 2002.

                                       53
<PAGE>
                                   SIGNATURES


         In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.


                         CHESTATEE STATE BANK


                         BY:   /s/J. Philip Hester, Sr.
                               ------------------------
                               J. Philip Hester, Sr., Chief Executive Officer,
                               President and Director

                         DATE: March 28, 2003


                         BY:   /s/Deborah F. McLeod
                               --------------------
                               Deborah F. McLeod, Chief Financial Officer
                               and Senior Vice President

                         DATE: March 28, 2003

                                       54
<PAGE>
         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.

/s/J. Philip Hester, Sr.
------------------------
J. Philip Hester, Sr.
Chief Executive Officer, President and
Director (principal executive officer)
March 28, 2003

/s/Ralph Millard Bowen
----------------------
Ralph Millard Bowen
Director
March 28, 2003

/s/Marcus C. Byrd, Jr.
----------------------
Marcus C. Byrd, Jr.
Director
March 28, 2003

/s/Glennon C. Grogan
--------------------
Glennon C. Grogan
Director
March 28, 2003

/s/James H. Grogan
------------------
James H. Grogan
Secretary and Director
March 28, 2003

/s/Deborah F. McLeod
--------------------
Deborah F. McLeod
Chief Financial Officer (principal
accounting officer) and Senior Vice
President
March 28, 2003

/s/Andrew M. Head
-----------------
Andrew M. Head
Director
March 28, 2003

/s/Bruce T. Howard
------------------
Bruce T. Howard
Director
March 28, 2003

/s/David E. Johnson
-------------------
David E. Johnson
Chairman of the Board of Directors
March 28, 2003

/s/William A. McRae
-------------------
William A. McRae
Director
March 28, 2003

/s/Kim M. Mills
--------------
Kim M. Mills
Director
March 28, 2003

/s/James W. Walden
------------------
James W. Walden
Director
March 28, 2003

/s/Russell M. Wallace
---------------------
Russell M. Wallace
Director
March 28, 2003
                                       55
<PAGE>
                                 CERTIFICATIONS

           (Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
                             15 U.S.C. Section 78m)

I, J. Philip Hester, Sr., President and Chief Executive Officer of Chestatee
Bancshares, Inc., certify that:

1. I have reviewed this annual report on Form 10-KSB of Chestatee Bancshares,
Inc. for the year ended December 31, 2002.

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

         a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiary, is made known to us by others within that entity, particularly
during the period in which this annual report is being prepared;

         b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing of this annual
report (the "Evaluation Date"); and

         c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors:

         a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

         b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officer and I have indicated in this annual
report whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.


Date:    March 28, 2003           By: /s/J. Philip Hester, Sr.
                                      ------------------------
                                      J. Philip Hester, Sr., President and CEO
                                      (Principal Executive Officer)

                                       56
<PAGE>
                             CERTIFICATIONS (cont'd)

           (Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
                             15 U.S.C. Section 78m)

I, Deborah F. McLeod, Chief Financial Officer and Treasurer of Chestatee
Bancshares, Inc., certify that:

1. I have reviewed this annual report on Form 10-KSB of Chestatee Bancshares,
Inc. for the period ended December 31, 2002.

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

         a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiary, is made known to us by others within that entity, particularly
during the period in which this annual report is being prepared;

         b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing of this annual
report (the "Evaluation Date"); and

         c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors:

         a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

         b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officer and I have indicated in this annual
report whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.


Date:    March 28, 2003         BY: /s/Deborah F. McLeod
                                    --------------------
                                    Deborah F. McLeod, CFO and Treasurer
                                    (Principal Financial and Accounting Officer)

                                       57