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, 2005 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.
                           --------------------------
           (Name of small business issuer as specified in its Charter)

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

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:

Title of each class                                             Name of Exchange
-------------------                                             ----------------
None                                                                        None

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

Title of each class                                             Name of Exchange
-------------------                                             ----------------
Common Stock                                                                None
no par value per share

Check whether the issuer (1) has 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
                                                       ---

Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of issuer'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. Yes  X     No
                      ---

Indicate by check mark whether registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).

The issuer's revenues for the most recent fiscal year were $ 17,444,905.

There were 3,446,281 outstanding shares of common stock, no par value per share,
as of December 31, 2005. The aggregate market value of the voting stock of the
Registrant held by non-affiliates of the Registrant, as of December 31, 2005,
was $23,047,780 based on the last sales price on such date.

<PAGE>
                                     PART I

ITEM 1.   DESCRIPTION OF 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, Inc. 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
Residential Mortgage. Unless otherwise expressly stated, the information
presented regarding the Company includes the Company, the Bank, Chestatee
Financial and Chestatee Residential 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 three
full-service branches: one located in downtown Dawsonville at 86 Highway 53
West, Dawsonville, Dawson County, Georgia; a second located in Pickens County,
Georgia at 34 Holcombe Way, Marblehill, Georgia; and a third located in Forsyth
County, located at 2675 Freedom Parkway, Cumming, 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
Residential Mortgage conduct their respective businesses at 6639 Highway 53
East, Dawsonville, Dawson County, Georgia.

Business
--------

     The assets of the Company consist primarily of our ownership of the capital
stock of the Bank, Chestatee Financial and Chestatee Residential 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.

                                       1
<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 $150 million, or 75%, of the Bank's total
loans at December 31, 2005. 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, 2005, the Bank held approximately $41 million, or
20% 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, 2005, the Bank held
approximately $10 million in consumer loans, representing 5% of the Bank's total
loans.

                                       2
<PAGE>
     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 from $10,000
to $250,000, depending on security, seniority and the type of loan. The
president and chief lending officer each have a lending limit of $250,000 and
jointly have a 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, 2005:

                                                             December 31, 2005

   Non-interest bearing demand.................................      12%
   Interest-bearing demand.....................................      43%
   Savings.....................................................       1%
   Time Deposits...............................................      24%
   Certificates of Deposit of $100,000 or more.................      20%

            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 Fidelity IFS, f/k/a
Intercept Group 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.

                                       3
<PAGE>
     The Bank principally serves the residents of Dawsonville and Dawson County.
Dawson County has grown approximately 23% since the 2000 census according to
U.S. Census Bureau statistics, from about 16,000 persons in 2000 to an estimated
20,000 by December 2005. 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
also serves the adjacent counties of Cherokee, Forsyth, Gilmer, Hall, Lumpkin
and Pickens.

     As of December 31, 2005, 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 Residential 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 Residential Mortgage for resale nor are any
loans held for mortgage servicing.

     Neither the Company nor its subsidiaries has any material patents,
licenses, franchises or concessions. No material expenditures were made by the
Company during its last two fiscal years on material research activities
relating to the development of services or the improvement of existing services.
Based upon present business activities, compliance with federal, state and local
provisions regulating discharge of materials into the environment will have no
material effects upon the capital expenditures, earnings and competitive
position of the Company.

     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.

                                       4
<PAGE>
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, 2005, four non-locally owned banks had offices in Dawson
County. We are the only locally owned bank 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.
GB&T has acquired Mountain State Bank and maintains offices in Dawson County and
Forsyth County. While there are no other financial institutions with offices in
our region, 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, 2005, the Bank had
64 full-time and 12 part-time employees. Chestatee Financial and Chestatee
Residential 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, 2005, is as follows (audited, dollar amounts in thousands, except for per
share information):

Total Assets.........................................................$   254,839
Total Deposits.......................................................$   215,982
Total Shareholders Equity............................................$    25,266
Net Income...........................................................$     2,410
Number of Issued and Outstanding Shares..............................  3,446,281
Book Value Per Share.................................................$      7.33
Net Income Per Share.................................................$      0.70

                                       5
<PAGE>
A history of the Company's financial position for the year ended December 31,
2004, is as follows (audited, dollar amounts in thousands, except for per share
information):

Total Assets.........................................................$   250,648
Total Deposits.......................................................$   200,394
Total Shareholders Equity............................................$    22,939
Net Income...........................................................$     1,648
Number of Issued and Outstanding Shares..............................  3,123,000
Book Value Per Share.................................................$      7.35
Net Income Per Share.................................................$      0.48

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 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. 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, 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. 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

                                       6
<PAGE>
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.

     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.

     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.

                                       7
<PAGE>
     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 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 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

                                       8
<PAGE>
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.

Under Federal Deposit Insurance Corporation Improvement Act of 1991 (or 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.

                                       9
<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, 2005, 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) 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.

                                       10
<PAGE>
     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." 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 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 2005 and received a CRA rating of "satisfactory."

     In the wake of the events of September 11th, on October 26, 2001, the
President signed the Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001. The Patriot Act
also made significant changes to the Bank Secrecy Act. Under the Patriot Act,
financial institutions are subject to prohibitions against specified financial
transactions and account relationships as well as enhanced due diligence and of
identifying customers when establishing new relationships and standards in their
dealings with foreign financial institutions and foreign customers. For example,
the enhanced due diligence policies, procedures, and controls generally require
financial institutions to take reasonable steps:

                                       11
<PAGE>

o    To conduct enhanced scrutiny of account relationships to guard against
     money laundering and report any suspicious transaction;

o    To ascertain the identity of the nominal and beneficial owners of, and the
     source of funds deposited into, each account as needed to guard against
     money laundering and report any suspicious transactions;

o    To ascertain for any foreign bank, the shares of which are not publicly
     traded, the identity of the owners of the foreign bank, and the nature and
     extent of the ownership interest of each such owner; and

o    To ascertain whether any foreign bank provides correspondent accounts to
     other foreign banks and, if so, the identity of those foreign banks and
     related due diligence information.

Under the Patriot Act, financial institutions are to establish anti-money
laundering programs to enhance their Bank Secrecy Act program. The Patriot Act
sets forth minimum standards for these programs, including:

o    The development of internal policies, procedures, and controls;

o    The designation of a compliance officer;

o    An ongoing employee training program; and

o    An independent audit function to test the programs.

Bank management believes that the Bank is currently in compliance with the
Patriot Act.


ITEM 2.   DESCRIPTION OF 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 three branches: its
downtown branch located at 86 Highway 53 West, Dawsonville, Dawson County,
Georgia 30534; its Marblehill branch, located at 34 Holcomb Way, Marblehill,
Pickens County, Georgia 30148; and its Keith Bridge Commons branch, located at
2675 Freedom Parkway, Cumming, Georgia 30041.

                                       12
<PAGE>
     The Bank's office consists of its main building with four drive-up windows
and an automated teller machine and an adjacent parking lot, situated on 1.1
acres of land. The Bank purchased 5,600 square feet of office space adjacent to
the main building of the Bank for administrative offices. The $1.5 million
purchase price for the administrative offices was paid to CSB Partners, LLP, an
entity owned by all of our directors.

     The downtown branch, in continuous operation since it opened in October
2000, 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 two drive-up windows and two ATMs, one located at the branch
and an offsite ATM located nearby, with an adjacent parking lot, situated on
1.08 acres. The building and land of the branch is owned by the Bank and opened
in May 2001. The Bank's branch in Forsyth County, which opened in May 2003,
consists of approximately 5,100 square feet, with three drive-up windows and one
ATM. The building and land of the branch is owned by the Bank.

     Chestatee Financial and Chestatee Residential 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.


ITEM 3.   LEGAL PROCEEDINGS
          -----------------

     Management is not aware of any other material pending legal proceedings to
which the Company, the Bank, Chestatee Financial or Chestatee Residential
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, 2005 to a vote of security holders.


                                     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.

                                       13
<PAGE>
     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.

     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 paid a 10% stock dividend to our shareholders in September 2005.
No stock dividend was paid in 2004.

     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      LOW SELLING
                             TRADED(1)              PRICE             PRICE
-------------------      ----------------        ------------      -----------
2005
    First Quarter              6,600                $10.00            $10.00
    Second Quarter            29,170                $10.00            $10.00
    Third Quarter             27,701                $10.00            $10.00
    Fourth Quarter            10,959                $11.00            $10.00
2004
    First Quarter                300                $10.00            $10.00
    Second Quarter            24,000                $10.50            $10.00
    Third Quarter             10,600                $10.00            $10.00
    Fourth Quarter             3,900                $10.00            $10.00

(1) According to information available to us, there are no trades between family
members during the year ended December 31, 2005 to our knowledge. 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.

                                       14
<PAGE>
As of March 1, 2006, the Company had 3,446,281 shares of its voting common stock
held by approximately 1,200 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 Residential 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
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.

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, Chestatee State Bank, our mortgage subsidiary,
Chestatee Residential Mortgage and our financial services subsidiary, Chestatee
Financial Services at December 31, 2005 and 2004 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.

                                       15
<PAGE>
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, 2005.

     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 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.

                                       16
<PAGE>
Overview

     In 2005, we reported net income of $2,410,000 as compared to $1,647,000 in
2004. The improvement in earnings reflects an improvement in the net interest
margin. Growth in 2005 was moderate as competition in our markets increased. Our
primary market area of Dawson and Forsyth County, Georgia continues to grow.

Financial Condition at December 31, 2005 and 2004

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

                                                       December 31,
                                                   2005           2004
                                                   ----           ----
                                                 (Dollars in Thousands)

Cash and due from banks                         $   4,811      $   3,420
Interest-bearing deposits in banks                  3,944          6,350
Federal funds sold                                 10,088          4,091
Securities                                         27,514         31,470
Loans, net                                        196,554        193,823
Premises and equipment                              7,585          7,904
Other assets                                        4,343          3,590
                                                ---------      ---------

                                                $ 254,839      $ 250,648
                                                =========      =========

Total deposits                                  $ 215,982      $ 200,394
Other borrowings                                   12,250         26,200
Other liabilities                                   1,341          1,115
Stockholders' equity                               25,266         22,939
                                                ---------      ---------

                                                $ 254,839      $ 250,648
                                                =========      =========

     As of December 31, 2005, we had total assets of $255 million, an increase
of 2% over December 31, 2004. Total interest-earning assets were $238 million at
December 31, 2005 or 93% of total assets as compared to 94% of total assets at
December 31, 2004. Our primary interest-earning assets at December 31, 2005 were
loans, which made up 83% of total interest-earning assets as compared to 82% at
December 31, 2004. Our ratio of loans to deposits and other borrowings was 87%
at December 31, 2005 as compared to 86% at December 31, 2004. Deposit growth of
$15 million, cash flows provided from maturing securities of $6 million, and
sales of securities of $4 million were primarily used to reduce Federal Home
Loan Bank advances by $14 million, purchase $7 million of securities and to fund
loan growth of $3 million.

     Our securities portfolio, consisting of U.S. Agencies, mortgage-backed
securities, municipal securities and restricted equity securities, amounted to
$27.5 million at December 31, 2005. Net unrealized losses on securities
available-for-sale were $584,000 at December 31, 2005 as compared to $270,000 at
December 31, 2004. At December 31, 2005, the Company had no securities
designated as held-to-maturity. 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.

                                       17
<PAGE>
     We have 74% 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 (7%), multifamily residential properties
(1%), construction loans to build one to four-family residential properties
(35%), and nonresidential properties consisting primarily of small business
commercial properties (31%). We generally require that loans collateralized by
real estate not exceed 80% of the collateral value.

     The remaining 26% 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,
     o    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,
     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 2005, we cannot predict what the impact of a
prolonged U.S. presence in Iraq or further terrorism on American soil would have
on the local economy.

     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.

                                       18
<PAGE>
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, 2005, we had loan commitments outstanding of $43 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, 2005, we had arrangements with three commercial
banks for additional short-term advances of $8,000,000.

     At December 31, 2005, our capital ratios were considered adequate based on
regulatory minimum capital requirements. Stockholders' equity increased in 2005
by $2.3 million due to net income of $2.4 million, proceeds from the issuance of
stock related to an exercise of options of $80,000 and a decrease in other
comprehensive income related to our securities available-for-sale of $184,000.
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, 2005, $1,200,000 dividends could be paid by the Bank
without regulatory approval.

                                       19
<PAGE>
     The minimum capital requirements to be considered well capitalized under
prompt corrective action provisions and the actual capital ratios for Chestatee
Bancshares, Inc. and the Bank as of December 31, 2005 are as follows:

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


     Leverage capital ratio               9.88%       9.64%          5.00%
     Risk-based capital ratios:
     Core capital                        11.49       11.21           6.00
     Total capital                       12.75       12.47          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
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.

                                       20
<PAGE>
Results of Operations For The Years Ended December 31, 2005 and 2004

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

                                                    Years Ended December 31,
                                                    2005                 2004
                                                    ----                 ----
                                                     (Dollars in Thousands)

Interest income                                  $ 16,354             $ 12,829
Interest expense                                    5,809                3,970
                                                 --------             --------
Net interest income                                10,545                8,859
Provision for loan losses                             674                  610
Other income                                        1,090                1,111
Other expenses                                      7,307                6,857
                                                 --------             --------
Pretax income                                       3,654                2,503
Income taxes                                        1,244                  855
                                                 --------             --------
Net income                                       $  2,410             $  1,648
                                                 ========             ========

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 4.20% in 2005 as
compared to 3.90% in 2004. Average loans increased by $18 million and average
investments increased $6 million which were the primary changes in average
interest-earning assets that increased overall by $24 million. Average
interest-bearing liabilities increased by $18 million as average interest
bearing demand deposits increased $3 million, average time deposits increased
$21 million and average other borrowings decreased $6 million. The rate earned
on average interest-earning assets increased to 6.52% in 2005 from 5.65% in
2004. The rate paid on average interest-bearing liabilities increased to 2.71%
in 2005 as compared to 2.02% in 2004. The increase in our net yield was due
primarily to a rising rate environment experienced during 2005. As rate
increases slow, we expect to see our net yield stabilize.

Provision for Loan Losses
-------------------------

     The provision for loan losses was $674,000 in 2005 as compared to $610,000
in 2004. 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.

                                       21
<PAGE>
     Approximately $600,000 of the $4.1 million allowance for loan losses at
December 31, 2005 is set aside as a specific reserve for a $1.4 million credit
that is in the process of being restructured. The credit is participated among
several banks. The restructuring will result in write-downs for all banks
involved in the credit. It is estimated that Chestatee State Bank will take
approximately $400,000 in write downs. Management does not anticipate additional
provision expense in order to cover this write down. The loan balance of $1.4
million is included in the balance of nonaccrual loans (refer to section
entitled Risk Elements).

     Management believes that, given this review and analysis, the $4,111,000 in
the allowance for loan losses at December 31, 2005, or 2.05% of total net
outstanding loans and the $3,620,000 in the allowance for loan losses at
December 31, 2004, or 1.83% 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 $1,090,000 in
2005 as compared to $1,111,000 in 2004. The net decrease is due primarily to a
decrease in gain on sale of ORE of $63,000 and losses on sale of securities of
$52,000, which were partially offset by increases in service charges on deposit
accounts of $141,000.

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

     Other expenses were $7,307,000 in 2005 as compared to $6,857,000 in 2004,
an increase of $450,000. Salaries and employee benefits increased by $387,000
due to annual salary increases and an increase in the number of full time
equivalent employees to 69 at December 31, 2005 from 68 at December 31, 2005.
The remainder of the increase in other expense is due primarily to an increase
in stationary and supplies expense of $49,000, an increase in director fees of
$44,000, an increase in audit fees of $28,000, and a decrease in occupancy and
equipment expense of $48,000.

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

     We have reported income tax expense in 2005 of $1,245,000 as compared to an
income tax benefit in 2004 of $855,000. The rate of the tax expense as a
percentage of our pretax income was 34% in 2005 and 2004.

                                       22
<PAGE>
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.

     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.

                                       23
<PAGE>
     At December 31, 2005, our cumulative one year interest rate-sensitivity gap
ratio was 101%. Our targeted ratio is 80% to 120% in this time horizon. This
indicates that our interest-earning assets will reprice in near unison with 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,
2005, 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                  $   3,944        $       -         $      -         $       -        $   3,944
     Federal funds sold                    10,088                -                -                 -           10,088
     Securities                                 -                -            2,338            25,176           27,514
     Loans                                146,596           15,595           34,633             4,002          200,826
                                        ---------        ---------         --------         ---------        ---------

                                          160,628           15,595           36,971            29,178          242,372
                                        ---------        ---------         --------         ---------        ---------
Interest-bearing liabilities:
     Interest-bearing demand
     deposits                              92,816                -                -                 -           92,816
     Savings                                3,835                -                -                 -            3,835
     Certificates of deposit               33,836           35,017           25,305                 -           94,158
     Other borrowings                       1,500            8,250            2,500                 -           12,250
                                        ---------        ---------         --------         ---------        ---------

                                          131,987           43,267           27,805                 -          203,059
                                        ---------        ---------         --------         ---------        ---------
Interest rate sensitivity
     gap                                $  28,641        $ (27,672)        $  9,166         $  29,178        $  39,313
                                        =========        =========         ========         =========        =========
Cumulative interest rate
     sensitivity gap                    $  28,641        $     969         $ 10,135         $  39,313
                                        =========        =========         ========         =========
Interest rate sensitivity
     gap ratio                               1.22             0.36             1.33                 -
                                             ====             ====             ====              ====
Cumulative interest rate
     sensitivity gap ratio                   1.22             1.01             1.05              1.19
                                             ====             ====             ====              ====
</TABLE>

                                       24
<PAGE>
Stock-Based Compensation
------------------------

     The Company has two stock-based employee compensation plans. 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. All options granted under these plans have an exercise price
equal to the market value of the underlying stock on the date of grant,
therefore no compensation costs are generally recognized in connection with
these options. The Company also has remaining options outstanding that were
granted to certain executive officers under employment agreements. Options
earned under these agreements were granted at prices based upon the year-end
book value of the Company. Compensation costs were recognized for the difference
between fair value and book value per share on these options.

     During 2005 the Company decided to accelerate the vesting on 45,837 options
to avoid the income statement impact of adopting SFAS 123 in future years. In
accordance with APB 25 the Company estimated that 11,230 (or 24.5%) of these
options would have otherwise become unexercisable over the next three years. The
Company estimates the incremental intrinsic value per share to be $1.91 at the
measurement date; therefore the Company recognized $21,450 in compensation costs
for the year ended December 31, 2005. No compensation costs were recognized in
2004.

     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,
                                                                   ------------------------------
                                                                       2005             2004
                                                                   -------------    -------------
<S>                                                                <C>              <C>
Net income, as reported                                            $ 2,409,553      $ 1,647,558
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,  net
of related tax effects                                                (225,387)         (24,261)
                                                                   -------------    -------------
Pro forma net income                                               $ 2,184,166      $ 1,623,297
                                                                   =============    =============
Earnings per share:
     Basic - as reported                                           $       .70      $       .48
                                                                   =============    =============
     Basic - pro forma                                             $       .63      $       .47
                                                                   =============    =============
     Diluted - as reported                                         $       .69      $       .48
                                                                   =============    =============
     Diluted - pro forma                                           $       .62      $       .47
                                                                   =============    =============
</TABLE>

               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.

                                       25
<PAGE>
                    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,
                                                         2005             2004
                                                         ----             ----
                                                        (Dollars in Thousands)
     ASSETS

Cash and due from banks                               $   4,175       $   4,216
Interest-bearing deposits in banks                        5,901           3,427
Taxable Securities                                       29,281          33,167
Tax-free Securities                                       1,458           1,188
Securities valuation account                               (422)           (417)
Federal funds sold                                       17,043           9,580
Loans (2)                                               197,695         179,930
Allowance for loan losses                                (3,650)         (3,328)
Other assets                                             11,439          11,906
                                                      ---------       ---------
                                                      $ 262,920       $ 239,669
                                                      =========       =========

Total interest-earning assets                         $ 250,956       $ 226,875
                                                      =========       =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits:
Noninterest-bearing demand                            $  22,906       $  20,944
     Interest-bearing demand                             95,720          92,900
     Savings                                              3,900           3,017
     Time                                                95,596          74,656
                                                      ---------       ---------
              Total deposits                            218,122         191,517

     Other borrowings                                    19,413          25,843
     Other liabilities                                    1,283             815
                                                      ---------       ---------
              Total liabilities                         238,818         218,175
     Stockholders' equity                                24,102          21,494
                                                      ---------       ---------
                                                      $ 262,920       $ 239,669
                                                      =========       =========

     Total interest-bearing liabilities               $ 214,629       $ 196,416
                                                      =========       =========

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

(2)  Nonaccrual loans included in average balances for 2005 and 2004 were
     $1,009,000 and $846,000 respectively.

                                       26
<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,
                                                                      ------------------------
                                                               2005                          2004
                                                                      Average                        Average
                                                      Interest         Rate             Interest      Rate
                                                      --------         ----             --------      ----
                                                                     (Dollars in Thousands)

<S>                                                  <C>               <C>           <C>              <C>
 INTEREST INCOME:
     Interest and fees on loans (1)                   $ 14,667          7.42%         $  11,617        6.46%
     Interest on deposits in banks                         178          3.01                 51        1.49
     Interest on taxable securities                        950          3.29              1,002        3.06
     Interest on tax-free securities                        57          3.90                 38        3.16
     Interest on federal funds sold                        502          2.95                121        1.27
                                                      --------                        ---------
     Total interest income                              16,354          6.52             12,829        5.65
                                                      --------                        ---------

 INTEREST EXPENSE:
     Interest on interest-bearing
          demand deposits                                2,186          2.28              1,366        1.47
     Interest on savings deposits                           13          0.34                  8        0.25
     Interest on time deposits                           3,138          3.28              1,999        2.68
     Interest on other borrowings                          472          2.43                597        2.31
                                                      --------                        ---------
     Total interest expense                              5,809          2.71              3,970        2.02
                                                      --------                        ---------

 NET INTEREST INCOME  $                                 10,545                         $  8,859

      Net interest spread                                               3.81%                          3.63%
                                                                        ====                           ====
      Net yield on average interest-earning assets                      4.20%                          3.90%
                                                                        ====                           ====
</TABLE>

(1)  Interest and fees on loans includes $1,025,000 and $1,122,000 of loan fee
     income for the years ended December 31, 2005 and 2004, respectively. There
     was no interest income recognized on nonaccrual loans during 2005 or 2004.

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.

                                       27
<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,
                                                       2005 vs. 2004
                                                       Changes Due To:

                                                  Rate      Volume        Net
                                                  ----      ------        ---
                                                     (Dollars in Thousands)
Increase (decrease) in:
  Income from interest-earning assets:
  Interest and fees on loans                    $ 1,835    $ 1,215      $ 3,050
  Interest on deposits in banks                      75         52          127
  Interest on taxable securities                     73       (125)         (52)
  Interest on tax-free securities                     9         10           19
  Interest on federal funds sold                    240        141          381
                                                -------    -------      -------
           Total interest income                  2,232      1,293        3,525
                                                -------    -------      -------

  Expense from interest-bearing liabilities:
  Interest on interest-bearing
           demand deposits                          777         43          820
  Interest on savings deposits                        3          3            6
  Interest on time deposits                         508        631        1,139
  Interest on other borrowings                       29       (155)        (126)
                                                -------    -------      -------
           Total interest expense                 1,317        522        1,839
                                                -------    -------      -------

           Net interest income                  $   915    $   771      $ 1,686


                              INVESTMENT PORTFOLIO

Types of Investments

     The carrying amounts of securities at the dates indicated, of which
$27,514,000 are classified as available-for-sale, are summarized as follows:

                                                       December 31,
                                              2005                     2004
                                              ----                     ----
                                                   (Dollars in Thousands)

U.S. Government agencies                   $  7,616                 $  8,899
Mortgage-backed securities                   17,551                   19,662
Municipals                                    1,294                    1,277
Restricted equity securities                  1,053                    1,632
                                           --------                 --------
                                           $ 27,514                 $ 31,470
                                           ========                 ========


                                       28
<PAGE>
Maturities

     The amounts of debt securities in each category as of December 31, 2005 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              $   0         -%          $ 1,932        3.55%         $ 5,684         3.62%
Mortgage-backed securities                -         -               326        3.78            1,511         3.63
Municipals                                -         -                 -          -                 -            -
                                      -----       ---           -------        ----          -------         ----
  Total debt securities               $   -         -%          $ 2,258        3.58%         $ 7,195         3.62%
                                      =====                     =======                      =======
</TABLE>

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

<S>                                                             <C>            <C>         <C>               <c>
U.S. Government agencies                                        $      -          - %      $   7,616         3.60%
Mortgage-backed securities                                        15,714       3.29           17,551         3.33
Municipals                                                         1,294       5.62            1,294         5.62
                                                                --------       ----        ---------         ----
  Total debt securities                                         $ 17,008       3.47%       $  26,461         3.52%
                                                                ========                   =========
</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. Yields for tax-free
     municipal securities are shown as a tax equivalent yield.



                                       29
<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,
                                                    2005               2004
                                                    ----               ----
                                                    (Dollars in Thousands)

     Commercial                                    $  41,492      $   38,633
     Real estate-construction                         69,204          56,529
     Real estate-mortgage                             80,399          90,336
     Consumer installment and other                    9,570          11,946
                                                   ---------      ----------
                                                     200,665         197,444
     Less allowance for loan losses                   (4,111)         (3,620)
                                                   ---------      ----------
                   Net loans                       $ 196,554      $  193,824
                                                   =========      ==========

Maturities and Sensitivities of Loans to Changes in Interest Rates

     Total loans as of December 31, 2005 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                                    $       31,115
     After one through five years                                 8,772
     After five years                                             1,605
                                                         --------------
                                                                 41,492
                                                         --------------

Construction
     One year or less                                            68,941
     After one through five years                                     -
     After five years                                               263
                                                         --------------
                                                                 69,204
                                                         --------------

Other
     One year or less                                            57,012
     After one through five years                                28,229
     After five years                                             4,728
                                                         --------------
                                                                 89,969
                                                         --------------

                                                         $      200,665
                                                         ==============

                                       30
<PAGE>
     The following table summarizes loans at December 31, 2005 with the due
dates after one year that have predetermined and floating or adjustable interest
rates.

                                                        (Dollars in Thousands)

Predetermined interest rates                                  $    40,434
Floating or adjustable interest rates                              38,032
                                                              -----------
                                                              $    78,466
                                                              ===========

Risk Elements

     Information with respect to nonaccrual, past due, restructured and other
problem loans at December 31, 2005 and 2004 is as follows:

                                                           December 31,
                                                     2005                 2004
                                                     ----                 ----
                                                      (Dollars in Thousands)

Nonaccrual loans                                   $ 2,456             $ 1,462
Loans contractually past due ninety
     days or more as to interest or
     principal payments and still accruing              49                 123
Restructured loans                                       0                   0
Potential problem loans                                  0                   0
Interest income that would have been recorded
     on nonaccrual and restructured loans under
     original terms                                     70                  30
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.


                                       31
<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,
                                                       2005             2004
                                                       ----             ----
                                                       (Dollars in Thousands)

Average amount of loans outstanding                 $ 203,314       $ 179,930
                                                    =========       =========

Balance of allowance for loan losses
     at beginning of year                           $   3,620       $   3,163
                                                    =========       =========

Loans charged off
     Commercial and financial                              56              30
     Real estate- mortgage                                 38             148
     Installment                                          140             169
                                                    ---------       ---------
                                                          234             347
                                                    ---------       ---------
Loans recovered
     Commercial and financial                               -              23
     Real estate mortgage                                   2             142
     Installment                                           49              29
                                                    ---------       ---------
                                                           51             194
                                                    ---------       ---------

Net charge-offs                                           183             152
                                                    ---------       ---------

Additions to allowance charged to operating
     expense during year                                  674             610
                                                    ---------       ---------

Balance of allowance for loan losses
     at end of year                                 $   4,111       $   3,620
                                                    =========       =========

Ratio of net loans charged off during the
year to average loans outstanding                        0.09%           0.08%
                                                         ====            ====

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
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

                                       32
<PAGE>
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 1.25% of outstanding loans at all times.

     As of December 31, 2005 and 2004, 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:

<TABLE>
<CAPTION>
                                              December 31, 2005                      December 31, 2004
                                             Percent of loans in                    Percent of loans in
                                                each category                          each category
                                   Amount      to total loans              Amount     to total loans
                                   -----------------------------------------------------------------
                                                        (Dollars in Thousands)

<S>                               <C>               <C>                   <C>              <C>
Commercial                        $ 1,644           21%                   $   760          19%
Real estate - construction            690           34                        724          29
Real estate - mortgage              1,489           40                      1,846          46
Consumer installment
     loans and other                  288            5                        290           6
                                  -------          ---                    -------         ---
                                  $ 4,111          100%                   $ 3,620         100%
                                  =======          ===                    =======         ===
</TABLE>


                                    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)

<TABLE>
<CAPTION>
                                                                    Years Ended December 31,
                                                        2005                                   2004
                                                Amount         Percent                 Amount          Percent
                                                --------------------------------------------------------------
                                                                     (Dollars in Thousands)

<S>                                           <C>                <C>                   <C>               <C>
Noninterest-bearing demand deposits           $22,906               -%                  $20,944             -%
Interest-bearing demand deposits               95,720            2.28                    92,900          1.47
Savings deposits                                3,900            0.34                     3,017          0.25
Time deposits                                  95,596            3.28                    74,656          2.68
                                             --------                                  --------
                                             $218,122                                  $191,517
                                             ========                                  ========
</TABLE>

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

                                       33
<PAGE>
     The amounts of time certificates of deposit issued in amounts of $100,000
or more as of December 31, 2005 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                                      $ 17,702
     Over three months through six months                         3,992
     Over six through twelve months                              10,483
     Over twelve months                                          10,057
                                                               --------
              Total                                            $ 42,234
                                                               ========


                    RETURN ON ASSETS AND STOCKHOLDERS' EQUITY

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

                                                     Years Ended December 31,
                                                       2005          2004
                                                    --------------------------

     Return on assets (1)                            .92 %                .69 %
     Return on equity (2)                          10.00                 7.67
     Dividend payout ratio (3)                         -                    -
     Equity to assets ratio (4)                     9.17                 8.97

(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.




                                       34
<PAGE>
ITEM 7.   FINANCIAL STATEMENTS
          --------------------


                      CHESTATEE BANCSHARES, INC.
                           AND SUBSIDIARIES

                     CONSOLIDATED FINANCIAL REPORT

                           DECEMBER 31, 2005







                                       35
<PAGE>
                           CHESTATEE BANCSHARES, INC.
                                AND SUBSIDIARIES

                          CONSOLIDATED FINANCIAL REPORT
                                DECEMBER 31, 2005




                                TABLE OF CONTENTS
                                -----------------


                                                                           Page
                                                                           ----

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.....................F-1

FINANCIAL STATEMENTS

     Consolidated balance sheets............................................F-2
     Consolidated statements of income......................................F-3
     Consolidated statements of comprehensive income........................F-4
     Consolidated statements of stockholders' equity........................F-5
     Consolidated statements of cash flows..................................F-6
     Notes to consolidated financial statements............................ F-8




                                       i

<PAGE>

                        REPORT OF INDEPENDENT REGISTERED
                             PUBLIC ACCOUNTING FIRM


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, 2005 and 2004, and the
related consolidated statements of income, comprehensive income, stockholders'
equity and cash flows for each of the two years in the period ended December 31,
2005. 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 the standards of the Public
Company Accounting Oversight Board (United States). 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, 2005 and 2004, and the
results of their operations and their cash flows for each of the two years in
the period ended December 31, 2005, in conformity with accounting principles
generally accepted in the United States of America.

                                             /s/ MAULDIN & JENKINS, LLC



Atlanta, Georgia
February 10, 2006


                                      F-1
<PAGE>
                   CHESTATEE BANCSHARES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           December 31, 2005 and 2004
<TABLE>
<CAPTION>
          Assets                                                         2005             2004
          ------                                                   -------------     ------------

<S>                                                                <C>               <C>
Cash and due from banks                                            $   4,811,307     $  3,419,928
Interest-bearing deposits in banks                                     3,944,005        6,350,302
Federal funds sold                                                    10,088,000        4,091,000
Securities available for sale                                         26,461,118       29,837,836
Restricted equity securities, at cost                                  1,052,500        1,631,800
Loans, net of unearned income                                        200,664,996      197,443,733
Less allowance for loan losses                                         4,111,154        3,620,445
                                                                   -------------    -------------
          Loans, net                                                 196,553,842      193,823,288
                                                                   -------------    -------------

Premises and equipment                                                 7,585,628        7,903,890
Other assets                                                           4,342,902        3,589,962
                                                                   -------------    -------------

          Total assets                                             $ 254,839,302    $ 250,648,006
                                                                   =============    =============


    Liabilities and Stockholders' Equity
    ------------------------------------

Deposits
    Noninterest-bearing                                            $  25,173,468    $  21,251,241
    Interest-bearing                                                 190,809,158      179,142,600
                                                                   -------------    -------------
          Total deposits                                             215,982,626      200,393,841
Other borrowings                                                      12,250,000       26,200,000
Other liabilities
                                                                       1,340,799        1,115,088
                                                                   -------------    -------------
          Total liabilities                                          229,573,425      227,708,929
                                                                   -------------    -------------

Commitments and contingencies

Stockholders' equity
    Common stock, no par value;
      20,000,000 shares authorized;
      3,446,281 and 3,123,000 shares
      issued and outstanding                                          24,757,151       21,554,341
    Retained earnings                                                    872,405        1,564,212
    Accumulated other comprehensive loss                                (363,679)        (179,476)
                                                                   -------------    -------------
          Total stockholders' equity                                  25,265,877       22,939,077
                                                                   -------------    -------------

          Total liabilities and stockholders' equity               $ 254,839,302      250,648,006
                                                                   =============      ===========
</TABLE>

                See Notes to Consolidated Financial Statements.

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

                        CONSOLIDATED STATEMENTS OF INCOME
                     Years Ended December 31, 2005 and 2004

<TABLE>
<CAPTION>
                                                                   2005            2004
                                                               -----------     -----------
<S>                                                            <C>             <C>
Interest income
    Loans, including fees                                      $14,667,170     $11,617,123
    Taxable securities                                             950,549       1,002,114
    Nontaxable securities                                           56,811          37,516
    Federal funds sold                                             502,075         121,385
    Interest-bearing deposits in banks                             177,841          50,980
                                                               ------------    ------------
              Total interest income                             16,354,446      12,829,118
                                                               ------------    ------------

Interest expense
    Deposits                                                     5,337,995       3,373,423
    Other borrowings                                               471,663         597,147
                                                               ------------    ------------
              Total interest expense                             5,809,658       3,970,570
                                                               ------------    ------------

              Net interest income                               10,544,788       8,858,548
Provision for loan losses                                          673,682         609,993
                                                               ------------    ------------
              Net interest income after
                provision for loan losses                        9,871,106       8,248,555
                                                               ------------    ------------

Other income
      Service charges and fees                                     903,092         762,015
      Gains (loss) on sales of securities available for sales      (51,712)          2,684
      Other operating income                                       239,079         346,514
                                                               ------------    ------------
              Total other income                                 1,090,459       1,111,213
                                                               ------------    ------------

Other expenses
    Salaries and employee benefits                               3,984,070       3,596,956
    Occupancy and equipment expenses, net                          975,210       1,023,182
    Other operating expenses                                     2,348,122       2,236,587
                                                               ------------    ------------
              Total other expenses                               7,307,402       6,856,725
                                                               ------------    ------------

              Income before income tax
                  expense                                        3,654,163       2,503,043

Income tax expense                                               1,244,610         855,485
                                                               ------------    ------------

              Net income                                       $ 2,409,553     $ 1,647,558
                                                               ============    ============

Basic earnings per share                                       $      0.70     $      0.48
                                                               ============    ============

Diluted earnings per share                                     $      0.69     $      0.48
                                                               ============    ============

Cash dividends per share                                       $         -     $         -
                                                               ============    ============
</TABLE>

                 See Notes to Consolidated Financial Statements.

                                      F-3
<PAGE>
                   CHESTATEE BANCSHARES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                     Years Ended December 31, 2005 and 2004

<TABLE>
<CAPTION>
                                                                          2005            2004
                                                                      -----------     -----------

<S>                                                                   <C>             <C>
Net income                                                            $ 2,409,553     $ 1,647,558

Other comprehensive income (loss):
        Unrealized holding gains (losses) on securities
           available for sale arising during period, net of
           taxes (benefits) of $(148,752) and $61,063                   (217,299)         100,674

        Reclassifications adjustment for (gains) losses realized in
           net income, net of taxes (benefits) of $(18,616) and
           $1,020                                                          33,096         (1,664)
                                                                      ------------    ------------

Other comprehensive income (loss)                                       (184,203)          99,010
                                                                      ------------    ------------

Comprehensive income                                                  $ 2,225,350     $ 1,746,568
                                                                      ============    ============
</TABLE>

                 See Notes to Consolidated Financial Statements.

                                      F-4
<PAGE>
                   CHESTATEE BANCSHARES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                     Years Ended December 31, 2005 and 2004

<TABLE>
<CAPTION>
                                          Common Stock                                Accumulated
                                 ------------------------------        Retained          Other           Total
                                                      Amount           Earnings      Comprehensive    Stockholders'
                                    Shares           Paid In           (Deficit)     Income (Loss)       Equity
                                 ------------    --------------     ------------     ------------     -------------

<S>                                <C>            <C>               <C>               <C>             <C>
Balance, December 31, 2003          3,106,000     $  21,414,341     $    (83,346)     $  (278,486)    $  21,052,509
    Net income                              -                 -        1,647,558                -         1,647,558
    Stock options exercised            17,000           140,000                -                -           140,000
    Other comprehensive income              -                 -                -           99,010            99,010
                                 -------------    -------------    -------------     ------------    --------------
Balance, December 31, 2004          3,123,000        21,554,341        1,564,212         (179,476)       22,939,077
    Net income                              -                 -        2,409,553                -         2,409,553
    Stock dividend declared           312,281         3,122,810        3,122,810)               -                 -
    Stock options exercised            11,000            80,000                -                -            80,000
    Stock based compensation                -                 -           21,450                -            21,450
    Other comprehensive loss                -                 -                -         (184,203)         (184,203)
                                 -------------    -------------     ------------     ------------    --------------
Balance, December 31, 2005          3,446,281     $  24,757,151     $    872,405      $  (363,679)    $  25,265,877
                                 =============    =============     ============     ============    ==============
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                       F-7
<PAGE>
                   CHESTATEE BANCSHARES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     Years Ended December 31, 2005 and 2004

<TABLE>
<CAPTION>
                                                                         2005           2004
                                                                    ------------    ------------
<S>                                                                 <C>             <C>
OPERATING ACTIVITIES
    Net income                                                      $  2,409,553    $  1,647,558
    Adjustments to reconcile net income to net cash
        provided by operating activities:
        Depreciation                                                     533,308         540,084
        Deferred Income taxes                                           (292,252)       (166,842)
        Provision for loan losses                                        609,993         673,682
        Gain on other real estate owned                                  (63,462)           --
        Amortization and accretion                                       345,495         185,408
        (Gain) loss on sale of securities available for sale              (2,684)         51,712
        Increase in interest receivable                                 (134,090)        (52,627)
        Increase in interest payable                                      81,949         126,575
        Net other operating activities                                  (157,340)      1,827,081
                                                                    ------------    ------------

              Net cash provided by operating activities                3,484,795       4,678,306
                                                                    ------------    ------------

INVESTING ACTIVITIES
    Net increase (decrease) in interest-bearing deposits in banks      2,406,297      (4,456,699)
    Net (increase) decrease in federal funds sold                     (5,997,000)      1,847,000
    Purchases of securities available for sale                        (7,148,816)     (6,829,727)
    Proceeds from maturities of securities available for sale          6,023,719       7,171,752
    Proceeds from sales of securities available for sale               3,950,357       4,446,717
    Net (increase) decrease in restricted equity securities             (596,800)        579,300
    Net increase in loans                                             (3,404,236)    (29,756,435)
    Proceeds from sales of other real estate owned                       843,832            --
    Proceeds from sales of premises and equipment                         37,711            --
    Purchase of premises and equipment                                  (221,822)       (150,160)
                                                                    ------------    ------------

              Net cash used in investing activities                   (3,812,201)    (27,442,809)
                                                                    ------------    ------------

FINANCING ACTIVITIES
    Net increase in deposits                                          15,588,785      16,855,625
    Proceeds from other borrowings                                     5,500,000            --
    Payments on other borrowings                                     (13,950,000)           --
    Net increase due to exercise of options                              140,000          80,000
                                                                    ------------    ------------

              Net cash provided by financing activities                1,718,785      22,495,625
                                                                    ------------    ------------

Net increase (decrease) in cash and due from banks                     1,391,379        (268,878)

Cash and due from banks, beginning of period                           3,419,928       3,688,806
                                                                    ------------    ------------

Cash and due from banks, end of period                              $  4,811,307    $  3,419,928
                                                                    ============    ============
</TABLE>

                                       F-6
<PAGE>
                   CHESTATEE BANCSHARES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF CASH FLOWS (cont'd)
                     Years Ended December 31, 2005 and 2004

<TABLE>
<S>                                                                     <C>              <C>
SUPPLEMENTAL DISCLOSURES
    Cash paid for:
          Interest                                                      $ 5,683,083      3,888,621
          Income taxes                                                  $ 1,559,452        651,000


NONCASH TRANSACTIONS
    Principal balances of loans transferred to other real estate owned  $        -         707,529
    Financed sales of other real estate owned                           $        -          70,029
</TABLE>


                 See Notes to Consolidated Financial Statements.



                                      F-7
<PAGE>
                   CHESTATEE BANCSHARES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Nature of Operations

         Chestatee Bancshares, Inc. (the "Company") is a bank holding company
         whose principal activity is the ownership and management of 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

         The consolidated financial statements include the accounts of the
         Company and its subsidiaries. Significant intercompany transactions and
         balances are 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 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 relate to the determination of the allowance for loan losses,
         the valuation of foreclosed real estate and contingent assets and
         liabilities. The determination of the adequacy of the allowance for
         loan losses is based on estimates that are susceptible to significant
         changes in the economic environment and market conditions. In
         connection with the determination of the estimated losses on loans and
         the valuation of foreclosed real estate, management obtains independent
         appraisals for significant collateral.

         Cash, Due From Bank and Cash Flows

         For purposes of reporting cash flows, cash and due from banks include
         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 and deposits 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 $902,000 at December
         31, 2005.

         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. Restricted equity securities without a
         readily determinable fair value are recorded at cost.

         The amortization of premiums and accretion of discounts are recognized
         in interest income using methods approximating the interest method over
         the life of the securities. Realized gains and losses, determined on
         the basis of the cost of specific securities sold, are included in
         earnings on the settlement date.

                                       F-8
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         Securities (Continued)

         Declines in the fair value of securities below their cost that are
         deemed to be other than temporary are reflected in earnings as realized
         losses. In estimating other-than-temporary impairment losses,
         management considers (1) the length of time and the extent to which the
         fair value has been less than cost, (2) the financial condition and
         near-term prospects of the issuer, and (3) the intent and ability of
         the Company to retain its investment in the issuer for a period of time
         sufficient to allow for any anticipated recovery in fair value.

         Loans

         Loans are reported at their outstanding unpaid principal balances less
         unearned income and the allowance for loan losses. Interest income is
         accrued on the outstanding principal balance. Nonrefundable loan fees
         and costs for loans are deferred and recognized as an adjustment of the
         related loan yield over the life of the loan 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, unless management believes that the
         accrued interest is recoverable through the liquidation of collateral.
         Interest income on nonaccrual loans is recognized on the cash-basis or
         cost-recovery method, until the loans are returned to accrual status.
         Loans are returned to accrual status when all the principal and
         interest amounts are brought current and future payments are reasonably
         assured.

         A loan is considered impaired when it is probable, based on current
         information and events, 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 fflows 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. Interest on accruing impaired loans
         is recognized as long as such loans do not meet the criteria for
         nonaccrual status.

         Allowance for Loan Losses

         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, if any, are credited to the
         allowance.

         The allowance is an amount that management believes will be adequate to
         absorb estimated losses relating to specifically identified loans, as
         well as probable credit losses inherent in the balance of the loan
         portfolio, based on an evaluation of the collectibility of existing
         loans and prior loss experience. This evaluation also takes into
         consideration such factors as changes in the nature and volume of the
         loan portfolio, overall portfolio quality, review of specific problem
         loans, concentrations and current economic conditions that may affect
         the borrower's ability to pay. This evaluation does not include the
         effects of expected losses on specific loans or groups of loans that
         are related to future events or expected changes in economic
         conditions. 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 Bank's allowance for loan losses, and
         may require the Bank to make additions to the allowance based on their
         judgment about information available to them at the time of their
         examinations.

                                      F-9
<PAGE>
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         Allowance for Loan Losses (Continued)

         The allowance consists of specific, general and unallocated components.
         The specific component relates to loans that are classified as either
         doubtful, substandard or special mention. For such loans that are also
         classified as impaired, an allowance is established when the discounted
         cash flows or collateral value of the impaired loan is lower than the
         carrying value of that loan. The general component covers
         non-classified loans and is based on historical loss experience
         adjusted for qualitative factors. An unallocated component is
         maintained to cover uncertainties that could affect management's
         estimate of probable losses. The unallocated component of the allowance
         reflects the margin of imprecision inherent in the underlying
         assumptions used in the methodologies for estimating specific and
         general losses in the portfolio.

         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 or in
         lieu of loan foreclosure and are initially recorded 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. Costs of improvements are capitalized,
         whereas costs relating to holding other real estate owned and
         subsequent adjustments to the value are expensed. There was no other
         real estate owned at December 31, 2005 or December 31, 2004.

         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-Based Compensation

         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 N. 25,
         Accounting for Stock Issued to Employees, and related Interpretations.
         All options granted under these plans have an exercise price equal to
         the market value of the underlying stock on the date of grant,
         therefore no compensation costs are generally recognized in connection
         with these options. The company also has remaining options outstanding
         that were granted to certain executive officers under employee
         agreements. Options earned under these agreements were granted at
         prices based upon the year-end book value of the Company. Compensation
         costs were recognized for the difference between fair value and book
         value per share on these options. During 2005 the Company decided to
         accelerate the vesting on 45,837 options to avoid the income statement
         impact of adopting SFAS 123 in future years. In accordance with APB 25
         the Company estimated that 11,230 or 24.5% of these options would have
         otherwise become unexercisable over the next three years. The Company
         estimates the incremental intrinsic value per share to be $1.91 at the
         measurement date; therefore the Company recognized $21,450 in
         compensation costs for the year ended December 31, 2005. No
         compensation costs were recognized in 2004. 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.

                                      F-10
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         Stock-Based Compensation (Continued)

<TABLE>
<CAPTION>
                                                                     Years Ended December 31,
                                                                   ----------------------------
                                                                       2005            2004
                                                                   ------------    ------------

        <S>                                                        <C>             <C>
         Net income, as reported                                   $ 2,409,553     $ 1,647,558
         Deduct: Total stock-based employee compensation
            expense determined under fair value based
            method for all awards, net of related tax effects         (225,387)        (24,261)
                                                                   ------------    ------------
         Pro forma net income                                      $ 2,184,166     $ 1,623,297
                                                                   ============    ============
         Earnings per share:
           Basic - as reported                                     $       .70     $       .48
                                                                   ============    ============
           Basic - pro forma                                       $       .63     $       .47
                                                                   ============    ============
           Diluted - as reported                                   $       .69     $       .48
                                                                   ============    ============
           Diluted - pro forma                                     $       .62     $       .47
                                                                   ============    ============
</TABLE>

         Earnings Per Share

         Basic earnings per share are computed by dividing net income by the
         weighted-average number of shares of common stock outstanding. Diluted
         earnings per share are computed by dividing net income 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. Basic earnings per share and diluted earnings per share for
         the year ended December 31, 2004, have been restated to reflect the 10%
         stock dividend declared in 2005.

         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.

         Recent Accounting Standards

         In December 2004, the Financial Accounting Standards Board (FASB)
         issued Statement No. 123R, Share-Based Payment, a revision of FASB
         Statement No. 123, Accounting for Stock-Based Compensation. This
         Statement supersedes APB Opinion No. 25, Accounting for Stock Issued to
         Employees, and its related implementation guidance. This Statement
         establishes standards for the accounting for transactions in which an
         entity exchanges its equity instruments for goods or services. It also
         addresses transactions in which an entity incurs liabilities in
         exchange for goods or services that are based on the fair value of the
         entity's equity instruments or that may be settled by the issuance of
         those equity instruments. This Statement focuses primarily on
         accounting for transactions in which an entity obtains employee
         services in share-based payment transactions such as the issuance of
         stock options in exchange for employee services. This Statement
         requires a public entity to measure the cost of employee services
         received in exchange for an award of equity instruments based on the
         grant-date fair value of the award (with limited exceptions). That cost
         will be recognized over the period during which an employee is required
         to provide service in exchange for the award - the requisite service
         period (usually the vesting period). The Company has elected to
         continue with the accounting methodology of Opinion No. 25 until
         adoption of this standard is required. The effects of this change are
         reflected, on a proforma basis above under the caption "Stock Based
         compensation."

                                      F-11
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 2005:
        U.S. Treasury and U.S.
           Government agencies        $  7,789,019   $         -     $   (173,486)   $  7,615,533
        State, county and municipal
           Securities                    1,334,770             -          (40,657)      1,294,113
        Mortgage-backed securities      17,921,553             -         (370,081)     17,551,472
                                      ------------   ------------    ------------    ------------
                                      $ 27,045,342   $         -     $   (584,224)   $ 26,461,118
                                      ============   ============    ============    ============

        December 31, 2004:
        U.S. Treasury and U.S.
           Government agencies        $  8,954,593   $      1,985    $    (58,017)   $  8,898,561
        State, county and municipal
           securities                    1,269,661         24,977         (17,250)      1,277,388
        Mortgage-backed securities      19,883,467          3,227        (224,807)     19,661,887
                                      ------------   ------------    ------------    ------------
                                      $ 30,107,721   $     30,189    $   (300,074)   $ 29,837,836
                                      ============   ============    ============    ============
</TABLE>

         Securities with a carrying value of $19,194,000 and $25,489,000 at
         December 31, 2005 and 2004 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,
         2005 by contractual maturity are shown below.

                                                  Securities Available for Sale
                                               ---------------------------------
                                                 Amortized            Fair
                                                    Cost             Value
                                               --------------   ----------------

         Due in less than one year             $            -   $             -
         Due from one to five years                 1,997,138          1,931,941
         Due from five to ten years                 5,791,882          5,683,592
         Due after ten years                        1,334,769          1,294,113
                                               --------------   ----------------
                                               $    9,123,789   $      8,909,646
         Mortgage-backed securities                17,921,553         17,551,472
                                               --------------   ----------------
                                               $   27,045,342   $     26,461,118
                                               ==============   ================

                                      F-12
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2. SECURITIES (Continued)

         The following table shows the gross unrealized losses and fair value of
         securities, aggregated by category and length of time that securities
         have been in a continuous unrealized loss position at December 31,
         2005.

<TABLE>
<CAPTION>
                                                Less Than Twelve Months             Over Twelve Months
                                            -------------------------------  ------------------------------
                                               Gross                              Gross
                                             Unrealized          Fair          Unrealized          Fair
                                               Losses            Value           Losses            Value
                                            -------------   ---------------  -------------   --------------
         <S>                                 <C>             <C>              <C>             <C>
         December 31, 2005:

            U.S. Treasury and U.S.
               Government agencies          $   (12,813)    $      987,188   $  (160,673)    $    6,628,346
            State, county  and municipal        (12,516)           762,253       (28,141)           531,859
            securities
            Mortgage-backed securities          (77,667)         5,802,298      (292,414)        11,749,174
                                            -------------   ---------------  -------------   --------------
                                            $  (102,996)    $    7,551,739   $  (481,228)    $   18,909,379
                                            =============   ===============  =============   ==============
</TABLE>

         Management evaluates securities for other-than-temporary impairment at
         least on a quarterly basis, and more frequently when economic or market
         concerns warrant such evaluation. The unrealized losses in the
         portfolio are believed to be temporary due to all securities meeting
         the criteria of acceptable investment grade and all being backed by
         government agencies or municipalities. In the event that these
         securities are held to maturity, no losses should be realized. Also at
         December 31, 2005, there were forty securities with unrealized losses.
         Three securities had depreciation of slightly more than 5% from the
         Company's amortized cost basis. The fair value of these three
         securities totaled $1,335,159.

NOTE 3. LOANS

         The composition of loans is summarized as follows:

                                                        December 31,
                                            -----------------------------------
                                                   2005              2004
                                            ----------------    ---------------

         Commercial and industrial          $    41,492,000     $   38,633,000
         Real estate - construction              69,204,000         56,529,000
         Real estate - mortgage                  80,399,000         90,336,000
         Consumer and other                       9,731,000         12,051,000
                                            ----------------    ---------------
                                                200,826,000        197,549,000
         Unearned income                           (161,004)          (105,267)
         Allowance for loan losses               (4,111,154)        (3,620,445)
                                            ----------------    ---------------
         Loans, net                         $   196,553,842     $  193,823,288
                                            ================    ===============

                                      F-13
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3. LOANS (Continued)

         Changes in the allowance for loan losses are as follows:

<TABLE>
<CAPTION>
                                                                  Years Ended December 31,
                                                            -------------------------------------
                                                                  2005                2004
                                                            -----------------    ----------------

         <S>                                                <C>                  <C>
          Balance, beginning of year                        $     3,620,445      $    3,162,548
             Provision for loan losses                              673,682             609,993
             Loans charged off                                     (234,512)           (346,285)
             Recoveries of loans previously charged off              51,539             194,189
                                                            -----------------    ----------------
          Balance, end of year                              $     4,111,154      $    3,620,445
                                                            =================    ================
</TABLE>

         The total recorded investment in impaired loans was $2,455,832 and
         $1,462,312 at December 31, 2005 and 2004, 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, 2005 and 2004. The average recorded
         investment in impaired loans for 2005 and 2004 was $1,009,015 and
         $846,241, respectively. Interest income recognized for cash payments
         received on impaired loans was not material for the years ended
         December 31, 2005 and 2004.

         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, 2005 are as follows:

         Balance, beginning                                  $    18,995,182
            Advances                                               9,279,170
            Repayments                                           (18,242,095)
                                                             -----------------
         Balance, ending                                     $    10,032,257
                                                             =================

NOTE 4.  PREMISES AND EQUIPMENT

         Premises and equipment are summarized as follows:

                                                   December 31,
                                        -----------------------------------
                                             2005               2004
                                        ---------------    ----------------

         Land and land improvements     $   1,405,872      $    1,405,872
         Buildings                          5,576,531           5,514,445
         Equipment                          3,102,148           2,944,381
                                        ---------------    ----------------
                                           10,084,551           9,864,698
         Accumulated depreciation          (2,498,923)         (1,960,808)
                                        ---------------    ----------------
                                        $   7,585,628      $    7,903,890
                                        ===============    ================

                                      F-14
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5.  DEPOSITS

         The aggregate amount of time deposits in denominations of $100,000 or
         more at December 31, 2005 and 2004 was $42,233,944 and $48,936,893,
         respectively. The Company had brokered certificates of deposit at
         December 31, 2005 and 2004 of $2,000,000 and $11,500,000, respectively.
         The scheduled maturities of time deposits at December 31, 2005 are as
         follows:

         2006                                   $    68,827,854
         2007                                        17,904,469
         2008                                         3,280,076
         2009                                         2,870,588
         2010                                         1,274,463
                                                ----------------
                                                $    94,157,450
                                                ================

         At December 31, 2005 and 2004, overdraft demand deposits reclassified
         to loans totaled $29,424 and $32,634, respectively.

NOTE 6. OTHER BORROWINGS

        Other borrowings consist of the following:

<TABLE>
<CAPTION>
                                                                                    December 31,
                                                                         --------------------------------
                                                                               2005             2004
                                                                         --------------    --------------
       <S>                                                               <C>               <C>
       Adjustable rate advance from Federal Home Loan Bank with
          interest payable quarterly (interest rate adjusts quarterly,
          1.58% at December 31, 2004), matures June 20, 2005.            $           -     $    1,250,000
       Fixed rate advance from Federal Home Loan Bank with interest
          payable monthly at 2.17%, matures January 18, 2005.                        -          4,600,000
       Fixed rate advance from Federal Home Loan Bank with interest
          payable monthly at 1.99%, matures June 20, 2006.                   1,250,000          1,250,000
       Fixed rate advance from Federal Home Loan Bank with interest
           payable monthly at 2.84%, matures June 20, 2008.                  1,250,000          1,250,000
       Fixed rate advance from Federal Home Loan Bank with interest
         payable monthly at 2.59%, matures September 26, 2006.               5,000,000          5,000,000
       Fixed rate advance from Federal Home Loan Bank with interest
          payable monthly at 2.50%, matures June 20, 2007                    1,250,000          1,250,000
       Fixed rate advance from Federal Home Loan Bank with interest
          payable monthly at 2.75%, matures October 3, 2006                  1,000,000          1,000,000
       Fixed rate advance from Federal Home Loan Bank with interest
          payable monthly at 2.38%, matures December 12,2005.                        -          5,100,000
       Fixed rate advance from Federal Home Loan Bank with interest
          payable monthly at 1.92%, matures July 28, 2005.                           -          1,500,000
       Fixed rate advance from Federal Home Loan Bank with interest
          payable monthly at 1.92%, matures July 29, 2005.                           -          1,500,000
       Fixed rate advance from Federal Home Loan Bank with interest
          payable monthly at 2.16% matures January 30, 2006.                 1,500,000          1,500,000
       Fixed rate advance from Federal Home Loan Bank with interest
          payable monthly at 2.68%, matures January 29, 2007.                1,000,000          1,000,000
                                                                         --------------    ---------------
               6                                                         $  12,250,000     $   26,200,000
                                                                         ==============    ===============
</TABLE>

                                      F-15
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6. OTHER BORROWINGS (Continued)

         The advances from the Federal Home Loan Bank are secured by certain
         qualifying loans of approximately $4 million, approximately $12.5
         million in mortgage-backed securities, and Federal Home Loan Bank stock
         of $1 million.

         Contractual maturities of other borrowings as of December 31, 2005 are
         as follows:

                   2006                                   $   8,750,000
                   2007                                       2,250,000
                   2008                                       1,250,000
                                                          --------------
                                                          $  12,250,000
                                                          ==============

NOTE 7. EMPLOYEE AND DIRECTOR BENEFIT PLANS

         Deferred Compensation Plans

         The Company has a deferred compensation plan providing for death and
         retirement benefits for its chief executive officer, chief financial
         officer and executive vice president. The estimated amounts to be paid
         under the compensation plan are being funded through the purchase of
         life insurance policies on the officers. The balance of the policy cash
         surrender values included in other assets at December 31, 2005 and 2004
         is $1,458,091 and $1,111,946, respectively. Income recognized on the
         policies amounted to $46,145 and $45,961. The balance of deferred
         compensation included in other liabilities at December 31, 2005 and
         2004 is $241,778 and $166,087, respectively. Expense recognized for
         deferred compensation was $75,691 and $70,173 for the years ended
         December 31, 2005 and 2004, 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 $61,227 and $47,190 for the years ended
         December 31, 2005 and 2004, respectively.

NOTE 8. STOCK-BASED COMPENSATION

         The Company has two stock option plans and has reserved a total of
         400,000 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
         are earned based upon the performance of the Company. Options earned
         under these agreements are priced at the Company's book value as of
         year-end and expire ten years from the date the options are earned.

         The number of stock options outstanding for 2004 along with the related
         exercise prices has been restated to reflect the 10% stock dividend
         declared in 2005.


                                      F-16
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8.  STOCK-BASED COMPENSATION (Continued)

         Other pertinent information related to the options follows:

<TABLE>
<CAPTION>
                                                     2005                         2004
                                          ---------------------------- ---------------------------
                                                          Weighted-                   Weighted-
                                                           Average                     Average
                                                          Exercise                     Exercise
                                             Shares          Price        Shares         Price
                                          ------------  -------------- ------------  -------------

<S>                                           <C>       <C>              <C>          <C>
    Under option, beginning of year           426,800   $   8.00         302,500      $    7.45
       Granted                                 13,000       9.22         148,500           9.09
       Exercised                              (11,000)      7.27         (18,700)          7.49
       Cancelled                                    -                     (5,500)          9.09
                                          -------------               ------------
    Under option, end of year                 428,800       8.05         426,800           8.00
                                          =============               ============

    Exercisable, end of year                  337,137       7.77         285,634           7.46
                                          =============               ============
    Weighted-average fair value of options
          granted during the year              $ 4.01                     $ 3.90
</TABLE>

         Information pertaining to options outstanding at December 31, 2005 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>
     $4.32 - $4.57             17,600       4.50 years    $ 4.45           17,600       $    4.32
     $7.27 - $10.00           411,200       7.32 years      8.21          319,537            7.27
                        --------------                                ------------
                              428,800       7.20 years      8.05          337,137            7.77
                        ==============                                ============
</TABLE>

         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,
                                                                            --------------------------------
                                                                                 2005                2004
                                                                            ----------------    ------------

       <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                                                   16.98%               0.01%
         Risk-free interest rate                                                4.35%               5.00%
</TABLE>

                                      F-17
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9.  INCOME TAXES

         Income tax expense consists of the following:

                                                 Years Ended December 31,
                                             --------------------------------
                                                 2005              2004
                                             --------------   ---------------

          Current                            $  1,536,862          1,022,327
          Deferred                               (292,252)         (166,842)
                                             --------------    --------------
               Income tax expense            $  1,244,610           855,485
                                             ==============    ==============

         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:

                                                     2005             2004
                                                 --------------   --------------

         Income taxes at federal statutory rate  $  1,242,415     $    851,034
         Tax-free income                              (66,827)         (48,047)
         Surtax exemption                               7,381            5,107
         State income tax                             149,263           81,401
         Other items                                  (87,622)         (34,010)
                                                 --------------   --------------
              Income tax expense                 $  1,244,610     $    855,485
                                                 ==============   ==============

         The components of deferred income taxes are as follows:

                                                          December 31,
                                                 -------------------------------
                                                     2005             2004
                                                 --------------  ---------------
         Deferred tax assets:
            Loan loss reserves                   $   1,279,170    $   1,066,668
            Deferred loan fees                          60,839           39,623
            Stock options                               12,740           12,740
            Deferred compensation                       91,237           62,674
            Nonaccrual loans                            27,032           11,219
            Other                                          372            4,824
            Securities available-for-sale              220,545           90,409
                                                 --------------   --------------
                                                     1,691,935        1,288,157
                                                 --------------   --------------
         Deferred tax liabilities:
            Depreciation                               324,466          343,076
                                                 --------------   --------------

                   Net deferred tax assets       $   1,367,469    $     945,081
                                                 ==============   ==============

                                      F-18
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10. EARNINGS PER SHARE

         Presented below is a summary of the components used to calculate basic
         and diluted earnings per share. The per share amounts and the weighted
         average common shares outstanding for December 31, 2004 have been
         restated to reflect the 10% stock dividend declared in 2005.

<TABLE>
<CAPTION>
                                                                  Years Ended December 31,
                                                               -------------------------------
                                                                   2005             2004
                                                               --------------   --------------
      <S>                                                     <C>              <C>
         Basic Earnings  Per Share:

            Weighted average common shares outstanding           3,438,222         3,421,254
                                                              ==============   ===============

            Net income                                        $  2,409,553     $   1,647,558
                                                              ==============   ===============

            Basic earnings  per share                         $        .70     $         .48
                                                              ==============   ===============

         Diluted Earnings Per Share:
            Weighted average common shares outstanding           3,438,222         3,421,254
            Net effect of the assumed exercise of stock
               options based on the treasury stock method
               using average market prices for the year             73,305            40,907
                                                              --------------   ---------------
            Total weighted average common shares and
               common stock equivalents outstanding              3,511,527         3,462,161
                                                              ==============   ===============

            Net income                                        $  2,409,553     $   1,647,558
                                                              ==============   ===============

            Diluted earnings  per share                       $        .69     $         .48
                                                              ==============   ===============
</TABLE>


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 and standby letters of credit. They involve, to varying
         degrees, elements of credit risk and interest rate risk in excess of
         the amount recognized in the balance sheets. The majority of all
         commitments to extend credit and standby letters of credit are variable
         rate instruments.

         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 they do for
         on-balance sheet instruments. A summary of the Company's commitments is
         as follows:

                                                          December 31,
                                                  -----------------------------
                                                       2005            2004
                                                  -------------   -------------

          Commitments to extend credit            $ 38,974,000    $ 28,231,000
          Financial standby letters of credit        1,225,000       1,411,000
          Credit card commitments                    4,230,000       3,837,000
                                                  -------------   -------------
                                                  $ 44,429,000    $ 33,479,000
                                                  =============   =============

                                      F-19
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11. COMMITMENTS AND CONTINGENCIES (Continued)

         Loan Commitments (Continued)

         Commitments to extend credit are agreements to lend to a customer as
         long as there is no violation of any condition established in the
         contract. Commitments generally have fixed expiration dates or other
         termination clauses and may require payment of a fee. Since many of the
         commitments are expected to expire without being drawn upon, the total
         commitment amounts do not necessarily represent future cash
         requirements. The amount of collateral obtained, if deemed necessary by
         the Company upon extension of credit is based on management's credit
         evaluation of the party. Collateral held varies, but may include
         accounts receivable, inventory, property and equipment, residential
         real estate, and income-producing commercial properties.

         Standby letters of credit are conditional commitments issued by the
         Company to guarantee the performance of a customer to a third party.
         Those guarantees 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 held varies as specified above and is required in
         instances which the Company deems necessary.

         At December 31, 2005 and 2004, the carrying amount of liabilities
         related to the Company's obligation to perform under financial standby
         letters of credit was insignificant. The Company has not been required
         to perform on any financial standby letters of credit, and the Company
         has not incurred any losses on financial standby letters of credit for
         the years ended December 31, 2005 and 2004.

         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 adverse
         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.

         Seventy-four 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 $5.3 million.


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,
         2005, approximately $1,200,000 in dividends could be paid without prior
         regulatory approval.

                                      F-20
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13. Regulatory Matters (Continued)

         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 consolidated
         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 Company's and Bank's 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.

         Quantitative measures established by regulation to ensure capital
         adequacy require the Company and the Bank to maintain minimum amounts
         and ratios of Total and Tier I capital to risk-weighted assets and of
         Tier I capital to average assets. Management believes, as of December
         31, 2005 and 2004, the Company and the Bank met all capital adequacy
         requirements to which they are subject.

         As of December 31, 2005, 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.
         Prompt corrective action provisions are not applicable to bank holding
         companies.

         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, 2005:
         Total Capital to Risk Weighted Assets
            Consolidated                         $ 28,433       12.75%   $  17,840       8%    $    N/A      N/A
            Bank                                 $ 27,803       12.47%   $  17,840       8%    $ 22,300       10%
         Tier I Capital to Risk Weighted Assets
            Consolidated                         $ 25,629       11.49%   $   8,920       4%    $    N/A      N/A
            Bank                                 $ 24,999       11.21%   $   8,920       4%    $ 13,380        6%
         Tier I Capital to Average Assets
            Consolidated                         $ 25,629        9.88%   $  10,370       4%    $    N/A      N/A
            Bank                                 $ 24,999        9.64%   $  10,370       4%    $ 12,962        5%

         December 31, 2004:
         Total Capital to Risk Weighted Assets
            Consolidated                         $ 25,821       11.99%   $  17,225       8%    $    N/A      N/A
            Bank                                 $ 25,262       11.74%   $  17,219       8%    $ 21,524       10%
         Tier I Capital to Risk Weighted Assets
            Consolidated                         $ 23,118       10.74%   $   8,613       4%    $    N/A      N/A
            Bank                                 $ 22,559       10.48%   $   8,610       4%    $ 12,915        6%
         Tier I Capital to Average Assets
            Consolidated                         $ 23,118        9.30%   $   9,948       4%    $    N/A      N/A
            Bank                                 $ 22,559        9.07%   $   9,946       4%    $ 12,432        5%
</TABLE>


                                      F-21
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 value is based on discounted cash
         flows or other valuation techniques. These 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.

         The following methods and assumptions were used by the Company in
         estimating the fair value of its financial instruments:

         Cash, Due From Banks, Interest-Bearing Deposits at Other Financial
         Institutions and Federal Funds Sold: The carrying amount of cash, due
         from banks, interest-bearing deposits at other financial institutions
         and federal funds sold approximates fair value.

         Securities: Fair value of securities is based on available quoted
         market prices. The carrying amount of equity securities with no readily
         determinable fair value approximates fair value.

         Loans: The carrying amount of variable-rate loans that reprice
         frequently and have no significant change in credit risk approximates
         fair value. The fair value of fixed-rate loans is estimated based on
         discounted contractual cash flows, using interest rates currently being
         offered for loans with similar terms to borrowers with similar credit
         quality. The fair value of impaired loans is estimated based on
         discounted contractual cash flows or underlying collateral values,
         where applicable.

         Deposits: The carrying amount of demand deposits, savings deposits, and
         variable-rate certificates of deposit approximates fair value. The fair
         value of fixed-rate certificates of deposit is estimated based on
         discounted contractual cash flows using interest rates currently being
         offered for certificates of similar maturities.

         Other Borrowings: The carrying amount of variable rate borrowings
         approximate fair value. The fair value of fixed rate other borrowings
         are estimated based on discounted contractual cash flows using the
         current incremental borrowing rates for similar type borrowing
         arrangements.

         Accrued Interest: The carrying amount of accrued interest approximates
         their fair value.

         Off-Balance Sheet Instruments: The carrying amount of commitments to
         extend credit and standby letters of credit approximates fair value.
         The carrying amount of the off-balance sheet financial instruments is
         based on fees charged to enter into such agreements.

                                      F-22
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

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

<TABLE>
<CAPTION>
                                                                     December 31,
                                          --------------------------------------------------------------------
                                                        2005                               2004
                                          ---------------------------------   --------------------------------
                                             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              $   18,843,312    $   18,843,312    $  13,861,230    $   13,861,230
           Securities available-for-sale      26,461,119        26,461,119       29,837,836        29,837,836
           Restricted equity securities        1,052,500         1,052,500        1,631,800         1,631,800
           Loans                             200,664,996       198,742,124      197,443,733       196,317,000
           Accrued interest receivable         1,306,229         1,306,229        1,253,602         1,253,602

         Financial liabilities:
           Deposits                          215,982,626       214,626,000      200,393,841       199,995,000
           Other borrowings                   12,250,000        11,865,816       26,200,000        25,645,000
           Accrued interest payable              473,419           473,419          346,844           346,844
</TABLE>

NOTE 15. SUPPLEMENTAL SEGMENT INFORMATION

         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.

                                      F-23
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15. SUPPLEMENTAL SEGMENT INFORMATION (Continued)

<TABLE>
<CAPTION>
                                                             INDUSTRY SEGMENTS
                       ----------------------------------------------------------------------------------
 For the Year Ended     Commercial                                 All
  December 31, 2005      Banking      Mortgage      Financial     Other      Eliminations      Total
 --------------------  -------------  -----------   ----------- -----------  ------------  --------------
 <S>                   <C>            <C>           <C>         <C>                         <C>
 Interest income       $ 16,354,446   $       -     $       -   $       -             -     $ 16,354,446
 Interest expense         5,809,658           -             -           -             -        5,809,658
 Net interest income     10,544,788           -             -           -             -       10,544,788
 Intersegment net
     interest income
     (expense)                    -           -             -           -             -                -
 Other revenue from
     external
 sources                  1,034,119      45,148        11,192           -             -        1,090,459
 Depreciation               540,084           -             -           -             -          540,084
 Provision for loan
     losses                 673,682           -             -           -             -          673,682
 Segment profit
 (loss)
     before taxes         3,689,512      44,726         10,931     (91,006)           -        3,654,163
 Segment assets         254,774,071     316,365         45,162     304,755     (601,051)     254,839,302
 Expenditures for
     premises and
     equipment              221,822           -              -           -            -          221,822
</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,
                                                ----------------------------
                                                    2005           2004
                                                -------------  -------------
          Other expenses:
             Legal and professional             $ 256,848     $    171,339
             Stationery and supplies              219,064          170,730
             Data processing                      313,213          339,542


NOTE 17. STOCK DIVIDEND

         On July 19, 2005, the Board of Directors of the Company declared a 10%
         stock dividend payable to shareholders of record as of August 20, 2005.
         Accordingly, 312,281 shares were issued to shareholders and an amount
         equal to the fair value of the shares, ($10 per share as of August 20,
         2005), was transferred from retained earnings to common stock. All per
         share amounts for 2004 have been restated to reflect the effects of
         this stock dividend.

                                      F-24
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18. PARENT COMPANY FINANCIAL INFORMATION

         The following information presents the condensed balance sheet,
         statements of operations and cash flows of Chestatee Bancshares, Inc.
         as of and for the years ended December 31, 2005 and 2004:

<TABLE>
<CAPTION>
                            CONDENSED BALANCE SHEETS

                                                                             2005                2004
                                                                        --------------     ---------------
          <S>                                                           <C>                <C>
           Assets

             Cash                                                       $     258,584      $      221,817
             Investment in subsidiaries                                    24,994,882          22,704,774
             Other assets                                                      46,171              46,246
                                                                        --------------     ---------------
                   Total assets                                         $  25,299,637      $   22,972,837
                                                                        ==============     ===============
           Liabilities
             Other liabilities                                          $      33,760      $       33,760
                                                                        --------------     ---------------
           Stockholders' equity                                            25,265,877          22,939,077
                                                                        --------------     ---------------
                   Total liabilities and stockholders' equity           $  25,299,637      $   22,972,837
                                                                        ==============     ===============
</TABLE>

<TABLE>
<CAPTION>
                              CONDENSED STATEMENTS OF OPERATIONS

                                                                              2005                2004
                                                                        ---------------    ----------------
        <S>                                                              <C>                <C>
          Expenses:
            Employee benefits                                           $      21,450      $            -
            Interest                                                                -                   -
            Other                                                              69,556              57,227
                                                                        ---------------    ----------------
                         Total expenses                                        91,006              57,227
                                                                        ---------------    ----------------

                         Loss before income tax benefits and equity
                           in undistributed income of subsidiaries            (91,006)            (57,227)

          Income tax benefits                                                 (26,247)            (21,595)
                                                                        ---------------    ----------------
                          Loss before equity in undistributed
                           income of subsidiaries                             (64,759)            (35,632)

          Equity in undistributed income
             of subsidiaries                                                 2,474,312           1,683,190
                                                                        ---------------    ----------------

                         Net income                                     $    2,409,553     $     1,647,558
                                                                        ===============    ================
</TABLE>

                                      F-25
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18. PARENT COMPANY FINANCIAL INFORMATION (Continued)

                       CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                            2005                2004
                                                                      ----------------    ---------------
       <S>                                                            <C>                <C>
        OPERATING ACTIVITIES
           Net income                                                 $    2,409,553     $    1,647,558
           Adjustments to reconcile net income to
              net used in operating activities:
              Undistributed income of subsidiaries                        (2,474,312)        (1,683,190)
              Net other operating activities                                  21,526             19,773
                                                                      ----------------   ----------------

                   Net cash used in operating activities                     (43,233)           (15,859)
                                                                      ----------------   ----------------

         FINANCING ACTIVITIES
           Exercise of stock options                                          80,000            140,000
                                                                      ----------------   ----------------

                   Net cash provided by financing activities                  80,000            140,000
                                                                      ----------------   ----------------

         Net increase in cash                                                 36,767            124,141

         Cash at beginning of year                                           221,817             97,676
                                                                      ----------------   ----------------

         Cash at end of year                                          $      258,584     $      221,817
                                                                      ================   ================
</TABLE>

                                      F-26
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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
Residential Mortgage have had no changes in or disagreements with its
independent auditors, Mauldin & Jenkins, LLC, since their inception.


ITEM 8A. 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.


ITEM 8B. OTHER INFORMATION
         -----------------

     The Company has no information required to be disclosed in a report on Form
8-K that was not reported.


                                    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.

                                       63
<PAGE>
     Each director of the Company also serves as a director of the Bank,
Chestatee Financial and Chestatee Residential 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
---------

     R. Millard Bowen, born April 6, 1942, is the owner of Millard Bowen
Communities. 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 its subsidiaries since their inception.

     Marcus C. 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 its subsidiaries since their inception.

     Glennon C. Grogan, born July 20, 1939, 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 its subsidiaries since their inception. Mr. Grogan's brother,
James H. Grogan, also serves as a director of the Company and its subsidiaries.

     James H. Grogan, born July 10, 1943, 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 its subsidiaries since their inception. Mr. Grogan's brother,
Glennon C. Grogan, is also a director of the Company and its subsidiaries.

     Andrew M. ("Jack") Head, born May 22, 1953, is the President of Head
Management Group. 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 the past Chairman and Chief Executive
Officer of Head Distributing Company (wholesale groceries). He is a graduate of
the University of Georgia. Mr. Head has served as a director of the Company and
its subsidiaries since their inception.

     J. Philip Hester, Sr., born January 23, 1953, is the President and Chief
Executive Officer of the Bank, Chestatee Financial and Chestatee Residential
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

                                       64
<PAGE>
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 its subsidiaries since their inception.

     B. Todd Howard, born March 17, 1967, is President of BTH Investments, the
President and co-owner of The Lumber Depot d/b/a Coal Mountain Builders Supply
and is the co-owner of Oakmont Investment Group LLP. He is a member of the
Gilmer County Homebuilders Association. Mr. Howard has served as a director of
the Company and its subsidiaries 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 its subsidiaries since their inception. Mr. Johnson was the
2001 Businessman of the Year for Dawson County. Since 2002, Mr. Johnson has
served as Chairman of the Board of Directors.

     W. 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 its subsidiaries since their
inception.

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

     Russell M. Wallace, born June 3, 1954, is a founding partner of The Wallace
Investment Group, LLC. He is a member of the First Baptist Church of
Dawsonville. He attended the University of Georgia. Mr. Wallace serves as a
director of the Company and its subsidiaries 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 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.

                                       65
<PAGE>
No director is a party in a material proceeding adverse to the interests of the
Company or its subsidiaries.

Executive Officers
------------------

     J. Philip Hester, Sr., in addition to his service as a director (see
paragraph in preceding section regarding directors), has served as the President
and Chief Executive Officer of the Company and its subsidiaries since their
inception.

     James M. Curry, born November 2, 1952, 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 Executive Vice-President
and Chief Financial Officer of the Company and its subsidiaries. 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 BB&T following its acquisition of Century South Banks since August
1990. She is a graduate of North Georgia College and State University.

     During the previous five years, no executive officer of the Company or its
subsidiaries 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.
No executive officer is a party in a material proceeding adverse to the
interests of the Company or its subsidiaries.

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, 2005, 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 except that Mark Byrd filed one Form 4 for a single
transaction after its due date.

Code of Ethics
--------------

     The Board of Directors has adopted, effective December 31, 2005, the Code
of Business Conduct and Ethics for the Company. The Code applies to the Chief
Executive Officer and the Chief Financial Officer, each instructed to pursue the
objectives of the Code:

     o    reasonably deterring wrongdoing and promoting honest and ethical
          conduct
     o    full, fair, accurate, timely and understandable disclosure in reports
          and documents
     o    compliance with government laws, rules and regulations
     o    prompt internal reporting of violations of the Code
     o    accountability for adherence to the Code

                                       66
<PAGE>
The Chief Executive Officer and the Chief Financial Officer are further
instructed to make recommendations to the Board of Directors periodically of
ways to improve such Code, and the Company will timely disclose any such
amendment in accordance with the regulations.

Committees
----------

     The Board of Directors holds regularly scheduled meetings monthly and
annual meetings are called from time to time as needed. Twelve meetings of the
Company's Board of Directors were held during the last full fiscal year. All
directors during the last full fiscal year attended at least 75% of the
aggregate of the total number of meetings of the Board of Directors held during
that time and meetings of the committees of which that director was a member.
The Company has established a number of committees to assist it in the discharge
of its duties, including an audit committee, nominating committee and a
compensation committee.

     The Compensation Committee is composed of Messrs. Head, McRae and Wallace.
That committee, which met two times in 2005, reviews and evaluates the
compensation policy of the Company, including bonuses, option grants, and
director compensation.

     The Audit Committee operates pursuant to the Charter approved by the
Company's Board of Directors. The Audit Committee Charter sets out the
responsibilities, authority and specific duties of the Audit Committee. The
Charter specifies, among other things, the structure and membership requirements
of the Audit Committee, as well as the relationship of the Audit Committee to
the independent accountants, the internal audit department, and management of
the Company. The Audit Committee generally approves the engagement of our
principal accountant to render audit and non-audit services prior to the
engagement of the accountant and the provision of those services. The Audit
Committee is thereafter responsible for reviewing the financial statements and
audit reports of the Company's independent auditors, in serving as liaison with
those independent auditors on behalf of the Company, and discussing the audit
function and results of the audit with the Board of Directors pursuant to its
Charter. The Audit Committee consists of Messrs. G. Grogan, Head, Howard and
McRae. The Audit Committee met five times in 2005.

     The Company does not have an audit committee financial expert. In the
market in which the Company operates there are a limited number of persons that
possess all of the attributes required under regulations to qualify as an audit
committee financial expert. To date no person has acceded to the Company's
proposal to join our Board of Directors to serve as the audit committee
financial expert. The Company continuously seeks qualified persons to serve in
this capacity. The Board of Directors has concluded that no member of the Audit
Committee has a relationship which, in the opinion of the Board of Directors,
would interfere with the exercise of his independent judgment in carrying out
the responsibilities of a director and each is an "independent director" within
the meaning of Rule 4200(a)(15) of the Nasdaq Market Rules, as amended.

                                       67
<PAGE>
     The Company's Audit Committee has issued the following report with respect
to the audited financial statements of the Company for the fiscal year ended
December 31, 2005:

     o    The Audit Committee has reviewed and discussed with the Company's
          management the Company's fiscal 2005 audited financial statements;
     o    The Audit Committee has discussed with the Company's independent
          auditors, Mauldin & Jenkins, LLC, the matters required to be discussed
          by Statement on Auditing Standards No. 61;
     o    The Audit Committee has received the written disclosures and letter
          from the independent auditors required by Independence Standards Board
          No. 1 (which relates to the auditors' independence from the Company
          and its related entities) and has discussed with the auditors their
          independence from the Company; and
     o    Based on the review and discussions referred to in the three items
          above, the Audit Committee recommended to the Board of Directors that
          the fiscal 2005 audited financial statements be included in the
          Company's Annual Report on Form 10-KSB for the fiscal year ended
          December 31, 2005.

     The Nominating Committee is comprised of Messrs. McRae, Mills and Jim
Grogan. Each member has been judged by the Board of Directors an "independent
director" within the meaning of Rule 4200(a)(15) of the Nasdaq Market Rules, as
amended. The committee met once in 2005. The Nominating Committee does not have
a charter.

     The process whereby the Nominating Committee identifies candidates may
include identification of individuals well-known in the community in which the
Company operates and individuals recommended to the Nominating Committee by
current directors or officers who know those individuals through business or
other professional relationships, as well as recommendations of individuals to
the Nominating Committee from shareholders and customers. Nominees meet
personally with the members of the Nominating Committee and are interviewed to
determine the individual's independence, skills and experience relative to the
needs of the Company.

     The Nominating Committee has a policy for consideration of candidates for
the Board of Directors as recommended by shareholders of the Company.
Nominations made by shareholders must be in writing and delivered or mailed to
the President of the Company not less than 14 days nor more than 50 days
immediately preceding the date of the Annual Meeting (or if less than 21 days
notice of an Annual Meeting is given to shareholders, not later than the close
of business on the seventh day following the day on which the notice of meeting
was mailed). Any nominations by shareholders must contain the: (a) name and
residence address of the nominating shareholder; (b) name and address of each
proposed nominee; (c) principal occupation of each proposed nominee; and (d)
number of shares of common stock of the Company owned by each proposed nominee.
Nominations not made in accordance with this procedure may be disregarded by the
presiding officer of the Annual Meeting, in his discretion, and upon his
instruction the inspector of election may disregard all votes cast for each such
nominee.

                                       68
<PAGE>
     In its evaluation of prospective candidates for director, the Nominating
Committee looks for individuals generally recognized as successful in business
or community efforts, that enjoy a reputation for honesty and integrity, that
have demonstrated commitment to the communities in which the Bank operates and
that have demonstrated in meetings with the Nominating Committee his or her
commitment to the best interests of the shareholders and employees of the
Company and the Bank. There is no difference in the nominee evaluation process
if the candidate is nominated by a shareholder or otherwise.

Compensation of Directors
-------------------------

     The Company and the Bank pay each director a $12,000 annual retainer fee.
Members of the various committees are also paid $100 for each committee meeting
attended (except for the chair of each committee that receives $150 for each
meeting attended). 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 220,000
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 its
subsidiaries) was granted an option to acquire 16,500 shares of our common stock
in the year ended December 31, 2000 and 1,100 shares of our common stock each in
the years ended December 31, 2001, 2002, 2003, 2004 and 2005. The options
granted in 2000 have an exercise price of $7.27 per share and can be exercised
at any time prior to October 17, 2010. The options granted in 2001, 2002, 2003,
2004 and 2005 have an exercise price of $9.09 per share and can be exercised at
any time prior to January 1, 2011, 2012, 2013, 2014 and 2015, respectively.
Millard Bowen is the only director that has exercised any portion of his option.
The Non-Employee Plan states that 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 1,100 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. The options granted in
2005 exhausted the 220,000 shares of common stock authorized and reserved for
issuance under the Non-Employee Plan.

                                       69
<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, 2005, 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 (4)
PRINCIPAL POSITION    YEAR      SALARY       BONUS     COMPENSATION(4)  STOCK AWARDS     SARs     PAYOUTS   COMPENSATION
<S>                   <C>      <C>          <C>             <C>            <C>         <C>           <C>    <C>
J. Philip Hester, Sr. 2005     $ 180,895    $ 7,258         -               -                -       -      $ 144,285(1)
CEO, President,       2004     $ 172,000    $ 6,913         -               -           50,000       -      $ 112,778(2)
Director              2003     $ 163,451    $ 6,585         -               -                -       -      $  79,826(3)

James M. Curry        2005     $ 121,163    $ 4,823         -               -                -       -      $  89,027(1)
Executive VP          2004     $ 113,750    $ 4,594         -               -           30,000       -      $  65,854(2)
                      2003     $ 108,000    $ 4,375         -               -                -       -      $   4,629(3)

Deborah F. McLeod     2005     $ 121,163    $ 4,823         -               -                -       -      $  73,036(1)
CFO, Executive VP     2004     $ 113,750    $ 4,594         -               -           30,000       -      $  60,374(2)
                      2003     $ 108,000    $ 4,375         -               -                -       -      $       0
</TABLE>
__________________________________________________

Employment Agreements and Change in Control Agreements

(1) The Company has accrued a deferred compensation expense under the defined
contribution plan totaling $50,897, contributed $4,934 to its 401(k) plan for
eligible employees for Mr. Hester and accrued a bonus totaling $88,454 during
the fiscal year ended December 31, 2005. The Company accrued deferred
compensation expense under a defined contribution plan totaling $20,474,
contributed $3,472 to its 401(k) plan and accrued a bonus of $65,081 for Mr.
Curry. The Company accrued a bonus of $65,081, contributed $3,635 to its 401(k)
plan and accrued a deferred compensation expense under the defined contribution
plan totaling $4,320 for Ms. McLeod.

(2) The Company has accrued a deferred compensation expense under the defined
contribution plan totaling $29,020 and contributed $4,688 to its 401(k) plan for
eligible employees for Mr. Hester and accrued a bonus totaling $79,070 during
the fiscal year ended December 31, 2004. The Company accrued a deferred
compensation under a defined contribution plan totaling $5,736, contributed
$3,308 to its 401(k) plan and accrued a bonus of $56,810 for Mr. Curry. The
Company accrued a bonus of $56,810 and contributed $3,564 to its 401(k) plan for
Ms. McLeod.

((3)) The Company has accrued a deferred compensation expense under the defined
contribution plan totaling $75,085 and contributed $4,741 to its 401(k) plan for
eligible employees for Mr. Hester during the fiscal year ended December 31,
2003. The Company accrued a deferred compensation under a defined contribution
plan totaling $4,629 for Mr. Curry.

(4) Perquisites' totaling less than $10,000 for any of the executive officers
has been omitted.

                                       70
<PAGE>
     J. Philip Hester, Sr., President and Chief Executive Officer, as well as a
director, of the Company, the Bank, Chestatee Financial and Chestatee
Residential 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 through
December 31, 2009. 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 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, 2005 is $713,274 and
the income recognized on the policies amounted to $27,758 for the year ended
December 31, 2005. The deferred compensation liability was $193,327 and expense
recognized was $50,897 at and for the year ended December 31, 2005. 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. In 2004, Mr. Hester was granted an option to purchase 55,000 shares of our
common stock. The exercise price of the options is $9.09 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 granted. In
addition, Mr. Hester was previously granted an option to purchase 46,200 shares
of our common stock. The exercise price of the options is $7.27 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 granted.
As of December 31, 2005, Mr. Hester had already earned options to acquire up to
17,600 shares of the common stock under his original employment agreement after
giving effect to the two-for-one stock split in October 2000 and 10% stock
dividend issued September 2005. At December 31, 2005, Mr. Hester had earned
options to acquire 74,801 shares of common stock.

     Mr. Curry entered into an employment agreement with the Bank effective
December 31, 2001. The initial term of the agreement runs through December 31,
2004, with automatic renewals of one year each absent termination for death,
disability, cause, termination without cause or voluntary resignation through
December 31, 2009. Mr. Curry was initially paid a base salary at inception of
$100,000 annually, that salary to be increased annually by five percent
commencing January 1, 2003. In addition, Mr. Curry is entitled to receive a
performance bonus each year based upon a criteria established by the
Compensation 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. Curry 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, 2005 is $442,481 and the income
recognized on the policies amounted to

                                       71
<PAGE>
     $39,223 for the year ended December 31, 2005. The deferred compensation
liability was $44,131 and expense recognized was $20,474 at and for the year
ended December 31, 2005. In addition to his salary and customary benefits, Mr.
Curry was granted an option to acquire up to 33,000 shares of the Company's
common stock, vesting one fifth annually beginning August 17, 2006. Mr. Curry
had previously been granted 16,500 shares of the Company's common stock, which
were fully vested at December 31, 2005. The exercise price of the options is
$9.09 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 granted. At December 31, 2005, Mr. Curry had earned options to acquire
27,501 shares of common stock. Mr. Curry is also entitled to certain additional
benefits, including an automobile allowance, a $500,000 million term life
insurance policy, annual paid vacation, healthcare insurance and disability
insurance

     Ms. McLeod entered into an employment agreement with the Bank effective
July 1, 2002. The initial term of the agreement runs through December 31, 2004,
with automatic renewals of one year each absent termination for death,
disability, cause, termination without cause or voluntary resignation through
December 31, 2009. Ms. McLeod is paid a base salary at inception of $100,000
annually, that salary to be increased annually by five percent commencing
January 1, 2003. The Board of Directors approved retirement benefits for Ms.
McLeod funded through the purchase of life insurance policies on her life. The
balance of the policy cash surrender values included in other assets at December
31, 2005 is $302,336 and the income recognized on the policies amounted to
$2,336 for the year ended December 31, 2005. The deferred compensation liability
was $4,320 and expense recognized was $4,320 at and for the year ended December
31, 2005. In addition, Ms. McLeod is entitled to receive a performance bonus
each year based upon a criteria established by the Compensation Committee of the
Board of Directors during the last calendar quarter of each fiscal year for the
subsequent year. In addition to her salary and customary benefits, Ms. McLeod
was granted an option to acquire up to 33,000 shares of the Company's common
stock, vesting one fifth annually beginning August 17, 2006. Ms. McLeod had
previously been granted 11,000 shares of the Company's common stock, vesting one
third annually beginning July 1, 2003. The exercise price of the options is
$9.09 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 granted. At December 31, 2005, Ms. McLeod had earned options to acquire
18,335 shares of common stock. Ms. McLeod is also entitled to certain additional
benefits, including an automobile allowance, a $500,000 million term life
insurance policy, annual paid vacation, healthcare insurance and disability
insurance

     The Amended and Restated Employment Agreements for Ms. McLeod and Messrs.
Hester and Curry contain a provision for a change in control of the Company or
the Bank. In such event, they will be entitled to receive their 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.

                                       72
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
         --------------------------------------------------------------

     The following table sets forth information with respect to the beneficial
ownership, as of March 1, 2006, of shares of common stock by:

     o    each of the Company's directors,
     o    the Company's named executive officers,
     o    each person known by the Company to be the beneficial owner of more
          than five percent of the Company's outstanding Common Stock, and
     o    all directors and executive officers of the Company as a group, and
          the percentage of the outstanding shares of Common Stock represented
          thereby.

Except as noted below, the Company believes 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
-------------------                 --------------------        ----------------

R. Millard Bowen                         167,365(1)                  4.5%
5072 Bristol Industrial Way
Buford, Georgia  30518

Marcus C. Byrd, Jr.                      155,531(2)                  4.1%
1661 Highway 9 South
Dawsonville, Georgia  30534

James M. Curry                           27,501(3)                   0.7%
312 Point Olympus Drive
Gainesville, Georgia  30506

Glennon C. Grogan                        88,196(4)                   2.3%
1980 Hughes Drive
Cumming, Georgia  30040
____________________________

(1) Includes 9,900 shares available upon exercise of his options but excludes
22,000 shares owned by Mr. Bowen's spouse for which he disclaims beneficial
ownership

(2) Includes 20,900 shares available upon exercise of his options and 22,000
shares held in trust by Mr. Byrd in his individual retirement account and 7,801
shares held by an affiliate, Byrd Howard Properties. The figure excludes 2,200
shares owned by Mr. Byrd's spouse for which he disclaims beneficial ownership,
but includes 4,510 shares held as custodian for his daughter.

(3) Mr. Curry's shares are available upon exercise of his options.

(4) Includes 20,900 shares available upon exercise of his options.

                                       73
<PAGE>
Name and Address                    Amount and Nature of        Percent of Class
of Beneficial Owner                 Beneficial Ownership
-------------------                 --------------------        ----------------

James H. Grogan                         95,926(5)                    2.6%
4210 Gravitt Road
Cumming, Georgia  30040

Andrew M. ("Jack") Head                 154,710(6)                   4.1%
2928 Ridgewood Road
Atlanta, Georgia  30327



J. Philip Hester, Sr.                   114,253(7)                   3.0%
32 Lakeshore Circle
Dawsonville, Georgia  30534

B. Todd Howard                          90,631(8)                    2.4%
3315 Dahlonega Highway
Cumming, Georgia  30040

David E. Johnson                        197,280(9)                   5.3%
260 Gold Leaf Terrace
Dawsonville, Georgia  30534

W. Alan McRae                           113,240(10)                  3.0%
499 Johnson Ferry Road
Atlanta, Georgia  30328

Deborah F. McLeod                       23,002(11)                   0.6%
33 Sheep Wallow Road
Dahlonega, Georgia  30533
___________________________

(5) Includes 20,900 shares available upon exercise of his options and 3,000
shares owned jointly by Mr. Grogan and his spouse.

(6) Includes 20,900 shares available upon exercise of his options, 22,000 shares
held in the John F. Head, Jr. Family Partnership, LLP and 220 shares owned by
his son but excludes 2,200 shares owned by Mr. Head's spouse and 220 shares
owned each by his two adult daughters, for which Mr. Head disclaims beneficial
ownership.

(7) Includes 74,801 shares available upon exercise of his options as well as
33,770 shares held in an individual retirement account for his benefit and 2,269
shares held jointly with Mr. Hester's spouse.

(8) Includes 20,900 shares available upon exercise of his options as well as
55,000 shares held jointly with his ex-spouse, 6,930 shares held as custodian
for the benefit of his minor children and 7,092 shares held by an affiliate,
Byrd Howard Properties.

(9) Includes 20,900 shares available upon exercise of his options as well as
97,790 shares held in an individual retirement account.

(10) Includes 20,900 shares available upon exercise of his options as well as
13,750 shares held in the McRae and Stolz Money Purchase Pension Plan.

(11) Includes 18,335 shares available upon exercise of her options.

                                       74
<PAGE>
Name and Address                    Amount and Nature of        Percent of Class
of Beneficial Owner                 Beneficial Ownership
-------------------                 --------------------        ----------------

Kim M. Mills                              47,790(12)                 1.3%
57 Brights Way
Dawsonville, Georgia  30534

Russell M. Wallace                       184,715(13)                 4.9%
77 Old River Road
Dahlonega, Georgia  30533

All executives officers and directors  1,459,329                    42.4%
as a group (13 persons)
__________________________

(12) Includes 20,900 shares available upon exercise of his options, 1,155 shares
held jointly with a family member, and 1,100 shares owned by his spouse.

(13)Includes 20,900 shares available upon exercise of his options.

     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 by footnote
within sixty days of December 31, 2005, such shares included in his beneficial
ownership pursuant to Rule 13d-3(d)(1) of the Securities Exchange Act of 1934
(the "1934 Act").

     Each of the directors have been nominated and will stand for election at
the annual meeting of shareholders to be held May 9, 2006. The directors so
elected will serve for a one year period until the next annual meeting of the
shareholders on May 8, 2007 and until any successor is duly elected and
qualified. The Company has no reason to believe any director so nominated will
be unable or unwilling to serve. If a nominee should be unable to accept
election as a director, which is not expected, the proxies may be voted with the
discretionary authority of each person serving as a proxy. The election of a
director requires the affirmative vote of a plurality of the votes cast by the
shares of the common stock entitled to vote at the Annual Meeting.


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.

                                       75
<PAGE>
     As of December 31, 2005, we had outstanding loans to certain of our
directors, executive officers and relatives of such persons and their
associates, which aggregated approximately $10,032,257. This represented
approximately 40% of our $25,265,877 equity capital accounts. We have not
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 13. EXHIBITS AND REPORTS ON FORM 8-K
         --------------------------------

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

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

  3.1      Articles of Incorporation                                    (1)
  3.2      Bylaws                                                       (1)
 10.2      Data Processing Contract                                     (2)
 10.3      International Services Agreement                             (2)
 10.4      Employment Agreement                                         (2)
 10.5      Lease Agreement                                              (1)
 10.6      2000 Non-Employee Stock Option Plan                          (2)
 10.7      2000 Employee Stock Option Plan                              (2)
 10.8      Form of Non-Employee Stock Option Agreement                  (2)
 10.9      Employee Stock Option Agreement                              (2)
 10.10     Broker's Payee Contract                                      (4)
 10.11     Securities Brokerage Agreement                               (4)
 10.12     Career Agency Banking Contract                               (4)
 10.13     Subscription Agreement                                       (4)
 10.14     Operating Agreement                                          (4)
 10.15     Lease Agreement                                              (4)
 10.16     Lease Agreement                                              (4)
 11        Statement re: Computation of Per Share Earnings              58
 14        Code of Ethics                                               (5)
 21        Subsidiaries of the Registrant                               (3)
 23        Consent of Mauldin & Jenkins, LLC                            59
 24        Power of Attorney                                            60
 31        Rules 13a-14(a) and 15d-14(a) Certifications                 61
 32        Certifications Pursuant to 18 U.S.C. Section 1350            63


                                       76
<PAGE>
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)
 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)


(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.

                                       77
<PAGE>
Description of Exhibits (cont'd)

   11       Statement re: Computation of Per Share Earnings
   14       Code of Ethics for Principal Officers(5)
   21       Subsidiaries of the Registrant(3)
   23       Consent of Mauldin & Jenkins, LLC
   24       Power of Attorney dated  March 30, 2004 executed by officers and
            a majority of directors of Chestatee State Bank
   31.1     Rules 13a-14(a) and 15d-14(a) Certifications for CEO
   31.2     Rules 13a-14(a) and 15d-14(a) Certifications for CFO
   32       Certifications of CEO and CFO Pursuant to 18 U.S.C. Section 1350,
            as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


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

     There was no Form 8-K filing during the last quarter of the year ended
December 31, 2005.


ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES
          -------------------------------------

Audit Fees
----------

     Aggregate fees billed for professional services rendered for the audit of
our annual financial statements for the years ended December 31, 2005 and 2004
and the reviews of our quarterly financial statements included with our
quarterly reports on Forms 10-QSB during this two year period are $52,200 and
$50,500, respectively.

Audit-Related Fees
------------------

     Aggregate fees billed for assurance and related services reasonably related
to the performance of the audit or review of our financial statements for the
years ended December 31, 2005 and 2004 are $6,064 and $9,224, respectively.
There were no other audit related services rendered.

Tax Fees
--------

     Aggregate fees billed for professional services rendered for tax
compliance, tax advice and tax planning for the years ended December 31, 2005
and 2004 are $7,158 and $7,132, respectively. The nature of those services were
tax preparation fees.

(5)  Incorporated by reference to the Company's Annual Report on Form 10-KSB
     filed March 29, 2004.

                                       78
<PAGE>
All Other Fees
--------------

     The aggregate fees billed for professional services rendered for all other
products and services for the years ended December 31, 2005 and 2004 are $0 and
$0, respectively. There were no other services rendered.

Pre-Approval Engagement
-----------------------

     Before our principal accountant is engaged to render audit and non-audit
services to the Company, the engagement is generally approved by our audit
committee. During the year ended December 31, 2005, the audit committee approved
approximately 100% of audit services. There were no financial systems design and
implementation services or non-audit services.



                                       79
<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 BANCSHARES, INC.


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

DATE: March 29, 2006


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

DATE: March 29, 2006



<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.                     /s/ Andrew M. Head
-------------------------                     ------------------
J. Philip Hester, Sr.                         Andrew M. Head
Chief Executive Officer, President and        Director
Director (principal executive officer)        March 29, 2006
March 29, 2006

/s/ Ralph Millard Bowen                       /s/ Bruce T. Howard
-----------------------                       -------------------
Ralph Millard Bowen                           Bruce T. Howard
Director                                      Director
March 29, 2006                                March 29, 2006

/s/ Marcus C. Byrd, Jr.                       /s/ David E. Johnson
-----------------------                       --------------------
Marcus C. Byrd, Jr.                           David E. Johnson
Director                                      Chairman of the Board of Directors
March 29, 2006                                March 29, 2006

/s/ Glennon C. Grogan                         /s/ William A. McRae
---------------------                         --------------------
Glennon C. Grogan                             William A. McRae
Director                                      Director
March 29, 2006                                March 29, 2006

/s/ James H. Grogan                           /s/ Kim M. Mills
-------------------                           ----------------
James H. Grogan                               Kim M. Mills
Secretary and Director                        Director

/s/ Deborah F. McLeod                         /s/ Russell M. Wallace
---------------------                         ----------------------
Deborah F. McLeod                             Russell M. Wallace
Chief Financial Officer (principal            Director
accounting officer) and Executive Vice        March 29, 2006
President