NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  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, 2004 or

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

                        Commission File Number: 000-30273

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

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

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

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

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

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

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

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.

The issuer's revenues for the most recent fiscal year were $ 13,940,331.

There were 3,123,000 outstanding shares of common stock, no par value per share,
as of December 31, 2004. The aggregate market value of the voting stock of the
Registrant held by non-affiliates of the Registrant, as of December 31, 2004,
was $20,921,720 based on the last sales price on such date.

                                       1
<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
Mortgage. Unless otherwise expressly stated, the information presented regarding
the Company includes the Company, the Bank, Chestatee Financial and Chestatee
Mortgage on a consolidated basis.

         The Company's principal place of business is located at 6639 Highway 53
East, Dawsonville, Dawson County, Georgia. The Bank has conducted its general
banking business since opening on May 15, 1998, from its main office located at
6639 Highway 53 East, Dawsonville, Dawson County, Georgia. The Bank has 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
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 Mortgage. The
Company is authorized to engage in any activity permitted by law to a
corporation, subject to applicable federal and state regulatory restrictions on
the activities of bank holding companies. This structure provides us with
greater flexibility than permitted to the Bank, affording the Company
opportunities to expand and diversify our business activities. While management
has no present plans to engage in any other business activities, we may, from
time to time, study the feasibility of establishing or acquiring subsidiaries to
engage in other business activities to the extent permitted by law.

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

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

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

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

         Loans secured by real estate are the primary component of the Bank's
loan portfolios, constituting approximately $147 million, or 74%, of the Bank's
total loans at December 31, 2004. 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, 2004, the Bank held approximately $39
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, 2004, the Bank
held approximately $12 million in consumer loans, representing 6% of the Bank's
total loans.

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

                                       3
<PAGE>
$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, 2004:

                                                              December 31, 2004

         Non-interest bearing demand..........................          9%
         Interest-bearing demand..............................         39%
         Savings..............................................          1%
         Time Deposits........................................         31%
         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.

         The Bank principally serves the residents of Dawsonville and Dawson
County. Dawson County has grown approximately 19% since the 2000 census
according to U.S. Census Bureau statistics. The number of residents in Dawson
County in 2000 was about 16,000 persons. The number of residents in Dawson
County had swelled to an estimated 20,000 by December 2004. 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

                                       4
<PAGE>
Interstate 85. The Bank also serves the adjacent counties of Cherokee, Forsyth,
Gilmer, Hall, Lumpkin and Pickens.

         As of December 31, 2004, the Bank has a correspondent relationship with
The Bankers Bank of Atlanta, Georgia. The correspondent bank provides certain
services to the Bank, such as investing its excess funds, processing checks and
other items, buying and selling federal funds, handling money fund transfers and
exchanges, shipping coins and currency, providing security and safekeeping of
funds and other valuable items, handling loan participation and furnishing
management investment advice on the Bank's securities portfolio.

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

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

         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.


                                       5
<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, 2004, three non-locally owned banks had offices in
Dawson County and one locally owned banks had offices in Dawson County. Bank of
America, N.A., a bank headquartered in Charlotte, North Carolina, operates a
branch office in Dawson County. BB&T operates one office in Dawson County.
United Community Bank maintains a main office and two branch offices in Dawson
County. Mountain State Bank is a locally-owned bank with offices in Dawson
County and Forsyth County as of December 31, 2004. 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, 2004, the Bank
had 60 full-time and 16 part-time employees. Chestatee Financial and Chestatee
Mortgage had no full-time or part-time employees, with all services rendered by
independent contractors. In our opinion, the Company and the Bank each enjoy an
excellent relationship with its employees. We are not a party to any collective
bargaining agreement.

Selected Financial Information
------------------------------

         A history of the Company's financial position for the period ended
December 31, 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.......................................................$     1,647
Number of Issued and Outstanding Shares..........................  3,123,000
Book Value Per Share.............................................$      7.35
Net Income Per Share.............................................$       .53

                                       6
<PAGE>
A history of the Company's financial position for the year ended December 31,
2003, is as follows (audited, dollar amounts in thousands, except for per share
information):

Total Assets.....................................................$   225,972
Total Deposits...................................................$   183,538
Total Shareholders Equity........................................$    21,053
Net Income.......................................................$      (624)
Number of Issued and Outstanding Shares..........................  3,106,000
Book Value Per Share.............................................$      6.78
Net Income Per Share.............................................$      (.20)

Monetary Policies
-----------------

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

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

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

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

                                       7
<PAGE>
         The Bank Holding Company Act requires a bank holding company to obtain
prior approval of the Federal Reserve to acquire the ownership or control of
more than 5% of any class of voting stock of any bank not already controlled by
it, for it or any subsidiary (other than a bank) to acquire all or substantially
all of the assets of a bank, and to merge or consolidate with any other bank
holding company.

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

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

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

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

         In November 1999, legislation was enacted removing barriers to
affiliations among banks and securities firms, insurance companies and other
financial service providers first established by the 1933 Glass-Steagall Act.
The Gramm-Leach-Bliley Act of 1999 includes a number of provisions intended to
modernize and to increase competition in the American financial services
industry, including authority for bank holding companies to engage in a wider
range of non-banking activities. A bank holding company that elects to become a

                                       8
<PAGE>
financial holding company may engage in any activity that the Federal Reserve,
in consultation with the Secretary of the Treasury, determines by regulation or
order is (i) financial in nature, (ii) incidental to any such financial
activity, or (iii) complementary to any such financial activity and does not
pose a substantial risk to the safety or soundness of depository institutions or
the financial system generally. The Gramm-Leach-Bliley Act specifies certain
activities that are deemed to be financial in nature, including lending,
exchanging, transferring, investing for others, or safeguarding money or
securities; underwriting and selling insurance; providing financial, investment,
or economic advisory services; underwriting, dealing in or making a market in,
securities; and any activity currently permitted for bank holding companies by
the Federal Reserve. A bank holding company may elect to be treated as a
financial holding company only if all depository institution subsidiaries of the
holding company are and continue to be well-capitalized and well-managed and
have at least a satisfactory rating under the Community Reinvestment Act.
National banks and state banks with requisite investment authority under
applicable state law are also authorized by the Gramm-Leach-Bliley Act to
engage, through "financial subsidiaries", in any activity that is permissible
for a financial holding company (as described above) and any activity that the
Secretary of the Treasury, in consultation with the Federal Reserve, determines
is financial in nature or incidental to any such financial activity, except (i)
insurance underwriting, (ii) real estate development or real estate investment
activities (unless otherwise permitted by law), (iii) insurance company
portfolio investments; and (iv) merchant banking. The authority of a bank to
invest in a financial subsidiary is subject to a number of conditions,
including, among other things, requirements that the bank must be well-managed
and well-capitalized (after deducting from capital the bank's outstanding
investments in financial subsidiaries). The Gramm-Leach-Bliley Act also adopts a
number of consumer protections, including provisions intended to protect privacy
of bank customers' financial information and provisions requiring disclosure of
ATM fees imposed by banks on customers of other banks. Of course, as a result of
this new law, the number and type of entities competing with us in our markets
could increase.

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

         Under the provisions of the Georgia Financial Institutions Code, it is
unlawful without the prior approval of the Georgia Department for any bank
holding company to acquire ownership or control of more than 5% of the voting
shares of a bank, for any bank holding company or a subsidiary thereof (other
than a bank) to acquire all or substantially all of the assets of a bank, or for
any bank holding company to merge or consolidate with any other bank holding
company. It is also unlawful under the Georgia Financial Institutions Code for
any bank holding company to acquire direct or indirect ownership or control of
more than 5% of the voting shares of any presently operating bank unless the
bank has been in existence and continuously operating or incorporated as a bank
for a period of five years or more prior to the date of application to the
Georgia Department for approval of such acquisition. In addition, in any

                                       9
<PAGE>
acquisition by an existing bank holding company, the initial banking subsidiary
of the bank holding company must have been incorporated for not less than two
years before the holding company can acquire another bank.

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

         Additionally, the Bank is insured and regulated by the Federal Deposit
Insurance Corporation. The major functions of the FDIC with respect to insured
banks include paying off depositors to the extent provided by law if a bank is
closed without making adequate provisions to pay the claims of depositors,
acting as the receiver of state banks placed in receivership when appointed
receiver by state authorities, and preventing the continuance or development of
unsound and unsafe banking practices. In addition, the FDIC is authorized to
examine insured banks that are not members of the Federal Reserve System, such
as the Bank, to determine their condition for insurance purposes. The FDIC also
is authorized to approve mergers, consolidations and assumption of deposit
liability transactions between insured banks and non-insured banks or
institutions, and to prevent capital or surplus diminution in these transactions
where the resulting, continued, or assumed bank is an insured non-member state
bank. The FDIC closely examines non-member banks for compliance with federal
statutes such as the Reinvestment Act of 1977 and the Truth-in-Lending Act.

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

         The Federal Deposit Insurance Corporation Improvement Act of 1991 (or
FDICIA) established a capital-based regulatory plan designed to promote early
intervention for troubled banks and requires the FDIC to choose the least
expensive resolution of bank failures. The capital-based regulatory framework
contains five categories of compliance with regulatory capital requirements,
including "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" and "critically undercapitalized." To qualify
as a "well capitalized" institution, a bank must have a leverage ratio of no
less than 5%, a Tier I risk-based ratio of no less than 6%, and a total
risk-based capital ratio of no less than 10%. The bank also must not be under
any order or directive from the appropriate regulatory agency to meet and
maintain a specific capital level. The current guidelines require all bank
holding companies and federally-regulated banks to maintain a minimum risk-based
Total Capital ratio equal to 8%, of which at least 4% must be Tier I capital.
The degree of regulatory scrutiny of a financial institution will increase, and
the permissible activities of the institution will decrease, as it moves

                                       10
<PAGE>
downward through the capital categories. Bank holding companies controlling
financial institutions can be called upon to boost the institutions' capital and
to partially guarantee the institutions' performance under their capital
restoration plans. Tier I capital includes stockholders' equity, qualifying
perpetual preferred stock and minority interests in equity accounts of
consolidated subsidiaries, but excludes goodwill and most other intangible
assets and excludes the allowance for loan and lease losses. Tier 2 capital
includes the excess of any preferred stock not included in Tier 1 capital,
mandatory convertible securities, hybrid capital instruments, subordinated debt
and intermediate-term preferred stock and general reserves for loan and lease
losses up to 1.25% of risk-weighted assets. Failure to meet capital guidelines
could subject a bank to a variety of enforcement remedies, including the
termination of deposit insurance by the FDIC, and to certain restrictions on its
business.

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

                                                 TOTAL RISK-             TIER
        CLASSIFICATION                          BASED CAPITAL            BASED

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

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

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

                                       11
<PAGE>
         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.

         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, 2004, 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.

                                       12
<PAGE>
         The Riegle Community Development and Regulatory Improvement Act of 1994
(or RCDRIA) promotes economic revitalization and development to "investment
areas." It established a Development Financial Institutions Fund to achieve
these objectives. The fund is authorized to provide financial assistance through
a variety of mechanisms, including equity investments, grants, loans, credit
union shares and deposits. The amount of assistance any development financial
institution and its subsidiaries and affiliates may receive is generally limited
to $5 million. A qualifying institution may receive an additional $3.75 million
for the purpose of serving an investment area in another state.

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

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

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

                                       13
<PAGE>
state has a deposit concentration cap that applies on a nondiscriminatory basis
to in-state or out-of-state bank holding companies making an initial
acquisition. Anti-trust laws are not affected by the Interstate Banking Act.

         The Interstate Banking Act now provides that banks may establish
branches across state lines upon approval of the appropriate federal regulator
if the state "opts-in" by enacting legislation that expressly permits interstate
branching. The establishment of the initial branch in a host state which permits
de novo interstate branching is subject to the same requirements which apply to
the initial acquisition of a bank in a host state, other than the deposit
concentration limits, since the bank would not control any deposits in the host
state at the time of entry. Once a new branch has been established, the bank may
establish and acquire additional branches at any location in the host state in
the same manner as any bank in the host state could have established or acquired
additional branches under applicable federal or state law.

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

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

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

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

                                       14
<PAGE>
         From time to time, various bills are introduced in the United States
Congress with respect to the regulation of financial institutions. Some of these
proposals, if adopted, could change significantly the regulation of banks and
the financial services industry. We cannot predict whether any of these
proposals will be adopted or, if adopted, what effect these proposals would
have.

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

         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:

     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.

                                       15
<PAGE>
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.

         The Bank's office consists of its main building with four drive-up
windows and an automated teller machine ("ATM") 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.

                                       16
<PAGE>
         Chestatee Financial and Chestatee Mortgage operate infrequently out of
the main offices of the Bank at 6639 Highway 53 East, Dawsonville, Georgia
30534. The independent contractors engaged by each render services independently
from limited undesignated office space. Consequently, no lease exists and no
rent is charged at present.


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 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, 2004 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.

         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

                                       17
<PAGE>
October 31, 2000. As a result of the stock split, the number of shares of common
stock issued and outstanding increased from 950,000 to 1,900,000 and the market
value per share of the common stock, based upon the limited trading information
available to management, dropped from $16.00 per share to approximately $8.00
per share. We did not pay a stock dividend to our shareholders in 2003 or 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           HIGH SELLING        LOW SELLING
                          SHARES TRADED(1)           PRICE               PRICE
------------------        ----------------       -------------       -----------
2003
    First Quarter            174,310                 $10.00            $10.00
    Second Quarter            43,788                 $10.00            $10.00
    Third Quarter             11,000                 $10.00            $10.00
    Fourth Quarter             5,900                 $10.50            $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, 2004 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.

As of December 31, 2004, the Company had 3,123,000 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 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.

                                       18
<PAGE>
         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 Mortgage, and our financial services subsidiary, Chestatee
Financial, at December 31, 2004 and 2003 and the results of operations for the
years then ended. The purpose of this discussion is to focus on information
about our financial condition and results of operations that are not otherwise
apparent from our audited financial statements. Reference should be made to
those statements and the selected financial data presented elsewhere in this
report for an understanding of the following discussion and analysis.

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

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

                                       19
<PAGE>
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, 2004.

         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.

Overview
--------

         The year 2004 was highlighted by significant loan and deposit growth.
In 2004, we reported net income of $1,647,000 as compared to a net loss of
$624,000. The improvement in earnings reflects a significant improvement in
asset quality. The loss in 2003 was due to a provision for loan losses of
$3,677,000. Refer to the section Analysis for Loan Losses for expanded
discussion. Our primary market area of Dawson County, Georgia continues to grow.



                                       20
<PAGE>
Financial Condition at December 31, 2004 and 2003
-------------------------------------------------

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

                                                               December 31,
                                                           2004            2003
                                                        ------------------------
                                                         (Dollars in Thousands)

Cash and due from banks                                 $  3,420        $  3,689
Interest-bearing deposits in banks                         6,350           1,894
Federal funds sold                                         4,091           5,938
Securities                                                31,470          35,845
Loans, net                                               193,823         165,314
Premises and equipment                                     7,904           8,325
Other assets                                               3,590           4,967
                                                        --------       ---------

                                                        $250,648        $225,972
                                                        ========        ========

Total deposits                                          $200,394        $183,538
Other borrowings                                          26,200          20,700
Other liabilities                                          1,115             681
Stockholders' equity                                      22,939          21,053
                                                        --------       ---------

                                                        $250,648        $225,972
                                                        ========        ========

As of December 31, 2004, we had total assets of $251 million, an increase of 11%
over December 31, 2003. Total interest-earning assets were $236 million at
December 31, 2004 or 94% of total assets as compared to 93% of total assets at
December 31, 2003. Our primary interest-earning assets at December 31, 2004 were
loans, which made up 82% of total interest-earning assets as compared to 79% at
December 31, 2003. Our ratio of loans to deposits and other borrowings was 86%
at December 31, 2004 as compared to 81% at December 31, 2003. Deposit growth of
$17 million, cash flows provided from securities of $4 million, $1 million from
fed funds sold and an additional $6 million in Federal Home Loan Bank advances
were used to fund loan growth of $28 million.

         Our securities portfolio, consisting of U.S. Agencies, mortgage-backed
securities, municipal securities and restricted equity securities, amounted to
$31.5 million at December 31, 2004. Net unrealized losses on securities
available-for-sale were $270,000 at December 31, 2004 as compared to $429,000 at
December 31, 2003. At December 31, 2004, 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.

                                       21
<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 (12%), multifamily residential properties
(1%), construction loans to build one to four-family residential properties
(38%), and nonresidential properties consisting primarily of small business
commercial properties (49%). 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, general real estate market deterioration,
     o    interest rate fluctuations,
     o    deteriorated or non-existing collateral, title defects, inaccurate
          appraisals,
     o    financial deterioration of borrowers, fraud, and
     o    any violation of banking protection laws.

         Construction lending can also present other specific risks to the
lender such as whether developers can find builders to buy lots for home
construction, whether the builders can obtain financing for the construction,
whether the builders can sell the home to a buyer, and whether the buyer can
obtain permanent financing. Although real estate values and employment trends in
our market area did not significantly deteriorate in 2004, 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.

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.

                                       22
<PAGE>
         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, 2004, we had loan commitments outstanding of $32
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, 2004, we had arrangements with three commercial
banks for additional short-term advances of $8,000,000.

         At December 31, 2004, our capital ratios were considered adequate based
on regulatory minimum capital requirements. Stockholders' equity increased in
2004 by $1.9 million due to net income of $1.6 million, proceeds from the
issuance of stock related to an exercise of options of $140,000 and an increase
in other comprehensive income related to our securities available-for-sale of
$99,000. 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, 2004, no dividends could be paid by the Bank without
regulatory approval.

         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, 2004 are as follows:

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

     Leverage capital ratio               9.30%          9.07%           5.00%
     Risk-based capital ratios:
        Core capital                     10.74          10.48            6.00
        Total capital                    11.99          11.74           10.00

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

                                       23
<PAGE>
          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.

Results of Operations For The Years Ended December 31, 2004 and 2003
--------------------------------------------------------------------

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

                                                        Years Ended December 31,
                                                         2004             2003
                                                      --------------------------
                                                         (Dollars in Thousands)

Interest income                                       $ 12,829         $ 11,830
Interest expense                                         3,970            4,172
                                                      --------         --------
Net interest income                                      8,859            7,658
Provision for loan losses                                  610            3,677
Other income                                             1,111            1,423
Other expenses                                           6,857            6,451
                                                      --------         --------
Pretax income (loss)                                     2,503           (1,047)
Income taxes (benefits)                                    855             (423)
                                                      --------         --------
Net income (loss)                                     $  1,648         $   (624)
                                                      ========         ========

                                       24
<PAGE>
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 3.90% in 2004 as
compared to 3.96% in 2003. Average loans increased by $22 million and average
investments increased $11 million which were the primary changes in average
interest-earning assets that increased overall by $33 million. Average
interest-bearing liabilities increased by $32 million as average interest
bearing demand deposits increased $14 million, average time deposits increased
$6 million and average other borrowings increased $12 million. The rate earned
on average interest-earning assets decreased to 5.65% in 2004 from 6.11% in
2003. The rate paid on average interest-bearing liabilities decreased to 2.02%
in 2004 as compared to 2.54% in 2003. The increase in our net yield was due
primarily to a rising rate environment experienced during the last half of 2004.
As rates continue to rise, we expect to see our net yield increase.

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

         The provision for loan losses was $610,000 in 2004 as compared to
$3,677,000 in 2003. 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. Of the
2003 amount, approximately $1.2 million was due to loan growth, increased net
loan charge offs, increased past due loans, and to our assessment of the
inherent risk in the loan portfolio. The balance was associated with
management's assessment of the risk associated with four commercial borrowers
which had been negatively impacted by among other issues adverse economic
conditions, changes in the local political environment, and increased
competition. In all cases, the Bank took what was considered a conservative and
realistic approach in its analysis of these credits. At December 31, 2004, each
of these four commercial relationships had been resolved by means of foreclosure
or payment of the loan.

         Management believes that, given this review and analysis, the
$3,620,000 in the allowance for loan losses at December 31, 2004, or 1.83% of
total net outstanding loans and the $3,163,000 in the allowance for loan losses
at December 31, 2003, or 1.88% 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.

                                       25
<PAGE>
Other Income
------------

         Other operating income consists of service charges on deposit accounts
and other miscellaneous revenues and fees. Other operating income was $1,111,000
in 2004 as compared to $1,423,000 in 2003. The net decrease is due primarily to
a decrease in mortgage origination fees of $163,000, a decrease in service
charges on deposit accounts of $90,000, related to a reduction in the number of
customer checks presented for payment on non-sufficient funds, a decrease in
gain on sale of loans of $138,000, and a decrease in gain on sale of securities
of $52,000, which were partially offset by increases in sales of other real
estate owned and repossessed collateral of $72,000 and rental income of $54,000.

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

         Other expenses were $6,857,000 in 2004 as compared to $6,451,000 in
2003, an increase of $406,000. Salaries and employees benefits increased by
$400,000 due to annual salary increases and an increase in the number of full
time equivalent employees to 68 at December 31, 2004 from 67 at December 31,
2004. Advertising and marketing expenses increased by $7,000.

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

         We have reported income tax expense in 2004 of $855,000 as compared to
an income tax benefit in 2003 of $423,000. In 2004, the rate of the tax expense
as a percentage of our pretax income was 34%. In 2003, the rate of the tax
benefit as a percentage of our pretax loss was 40%. The percentage for 2003 was
higher than the federal statutory percentage of 34% due to 2002's current
taxable income as reported on our income tax return being taxed at a 15% rate,
accounting for a 9% surtax exemption benefit. In addition, state income tax
benefits recognized in 2002 accounted for an additional 6% reduction in the 2003
overall tax rate.

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

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

         Our asset/liability mix is monitored on a regular basis with a report
reflecting the interest rate-sensitive assets and interest rate-sensitive
liabilities being prepared and presented to the Bank's Board of Directors on a
monthly basis. The objective of this policy is to monitor interest
rate-sensitive assets and liabilities so as to minimize the impact of
substantial movements in interest rates on earnings. An asset or liability is
considered to be interest rate-sensitive if it will reprice or mature within the
time period analyzed, usually one year or less. The interest rate-sensitivity
gap is the difference between the interest-earning assets and interest-bearing
liabilities scheduled to mature or reprice within such time period. A gap is
considered positive when the amount of interest rate-sensitive assets exceeds
the amount of interest rate-sensitive liabilities. A gap is considered negative

                                       26
<PAGE>
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.

         At December 31, 2004, our cumulative one year interest rate-sensitivity
gap ratio was 117%. Our targeted ratio is 80% to 120% in this time horizon. This
indicates that our interest-earning assets will reprice during this period at a
rate faster than our interest-bearing liabilities.

         The following table sets forth the distribution of the repricing of our
interest-earning assets and interest-bearing liabilities as of December 31,
2004, 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.

                                       27
<PAGE>
<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          $  6,350   $      -    $      -    $      -   $  6,350
     Federal funds sold            4,091          -           -           -      4,091
     Securities                        -          -       1,949      29,521     31,470
     Loans                       141,267     27,579      25,922       2,781    197,549
                                --------   --------    --------    --------   --------
                                $151,708     27,579      27,871      32,302    239,460
                                --------   --------    --------    --------   --------

Interest-bearing liabilities:
     Interest-bearing demand
     deposits                   $ 83,722          -           -           -     83,722
     Savings                       3,574          -           -           -      3,574
     Certificates of deposit       5,108     46,558      40,181           -     91,847
     Other borrowings              5,850      9,600      10,750           -     26,200
                                --------   --------    --------    --------   --------
                                $ 98,254     56,158      50,931           -    205,343
                                --------   --------    --------    --------   --------

Interest rate sensitivity
     gap                        $ 53,454   $(28,579)   $(23,060)   $ 32,302   $ 34,117
                                ========   ========    ========    ========   ========
Cumulative interest rate
     sensitivity gap            $ 53,454   $ 24,875    $  1,815    $ 34,117
                                ========   ========    ========    ========
Interest rate sensitivity
     gap ratio                      1.54       0.49        0.55           -
                                ========   ========    ========    ========
Cumulative interest rate
     sensitivity gap ratio          1.54       1.16        1.01        1.17
                                ========   ========    ========    ========
</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.

                                       28
<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,
                                                    2004               2003
                                                ----------------------------
                                                    (Dollars in Thousands)

ASSETS
     Cash and due from banks                    $   4,216          $   4,002
     Interest-bearing deposits in banks             3,427              1,667
     Taxable Securities                            33,167             22,344
     Tax-free Securities                            1,188                552
     Securities valuation account                    (417)              (100)
     Federal funds sold                             9,580             11,377
     Loans (2)                                    179,930            157,741
     Allowance for loan losses                     (3,328)            (3,324)
     Other assets                                  11,906              9,776
                                                ---------          ---------
                                                $ 239,669          $ 204,035
                                                =========          =========

     Total interest-earning assets              $ 226,875          $ 193,581
                                                =========          =========

LIABILITIES AND STOCKHOLDERS' EQUITY
     Deposits:
     Noninterest-bearing demand                 $  20,944          $  17,275
     Interest-bearing demand                       92,900             78,905
     Savings                                        3,017              2,323
     Time                                          74,656             69,483
                                                ---------          ---------
     Total deposits                               191,517            167,986

     Other borrowings                              25,843             13,848
     Other liabilities                                815                506
                                                ---------          ---------
     Total liabilities                            218,175            182,340
     Stockholders' equity                          21,494             21,695
                                                ---------          ---------
                                                $ 239,669          $ 204,035
                                                =========          =========

     Total interest-bearing liabilities         $ 196,416          $ 164,559
                                                =========          =========

(1)  For each category, average balances were determined using the daily average
     balances during the year.
(2)  Nonaccrual loans included in average balances for 2004 and 2003 were
     $846,000 and $622,000 respectively.

                                       29
<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,
                                                           2004                   2003
                                                             Average                 Average
                                                   Interest    Rate       Interest     Rate
                                                            (Dollars in Thousands)
<S>                                                 <C>         <C>       <C>          <C>
INTEREST INCOME:
     Interest and fees on loans (1)                 $11,617     6.46%     $10,965      6.95%
     Interest on deposits in banks                       51     1.49           29      1.74
     Interest on taxable securities                   1,002     3.06          695      3.12
     Interest on tax-free securities                     38     3.16           15      2.72
     Interest on federal funds sold                     121     1.27          126      1.11
                                                    -------               -------
     Total interest income                          $12,829     5.65      $11,830      6.11
                                                    -------               -------

INTEREST EXPENSE:
     Interest on interest-bearing
       demand deposits                              $ 1,366     1.47%     $ 1,446      1.83%
     Interest on savings deposits                         8     0.25            9      0.39
     Interest on time deposits                        1,999     2.68        2,426      3.49
     Interest on other borrowings                       597     2.31          291      2.10
                                                    -------               -------
     Total interest expense                         $ 3,970     2.02      $ 4,172      2.54
                                                    -------               -------

NET INTEREST INCOME                                 $ 8,859               $ 7,658

     Net interest spread                                        3.63%                  3.58%
                                                                ====                   ====
     Net yield on average interest-earning assets               3.90%                  3.96%
                                                                ====                   ====
</TABLE>

(1)  Interest and fees on loans includes $1,122,000 and $999,000 of loan fee
     income for the years ended December 31, 2004 and 2003, respectively. There
     was no interest income recognized on nonaccrual loans during 2004 or 2003.

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.

                                       30
<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,
                                                          2004 vs. 2003
                                                         Changes Due To:

                                                    Rate      Volume       Net
                                                  -----------------------------
                                                      (Dollars in Thousands)

Increase (decrease) in:
     Income from interest-earning assets:
     Interest and fees on loans                   $  (817)   $ 1,469    $   652
     Interest on deposits in banks                     (5)        27         22
     Interest on taxable securities                   (15)       322        307
     Interest on tax-free securities                   37          -         37
     Interest on federal funds sold                    17        (21)        (4)
                                                  -------    -------     ------
     Total interest income                        $  (783)     1,797      1,014
                                                  -------    -------     ------

     Expense from interest-bearing liabilities:
     Interest on interest-bearing
     demand deposits                              $  (312)   $   232    $   (80)
     Interest on savings deposits                      (4)         3         (1)
     Interest on time deposits                       (597)       170       (427)
     Interest on other borrowings                      32        275        307
                                                  -------    -------     ------
     Total interest expense                       $  (881)   $   680    $  (201)
                                                  -------    -------    -------

     Net interest income                          $    98    $ 1,117    $ 1,215
                                                  =======    =======    =======


                              INVESTMENT PORTFOLIO

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

         The carrying amounts of securities at the dates indicated are
summarized as follows:

                                                 Years Ended December 31,
                                               2004                    2003
                                            ---------------------------------
                                                  (Dollars in Thousands)


     U.S. Government agencies               $  8,899                 $  9,544
     Mortgage-backed securities               19,662                   24,162
     Municipals                                1,277                    1,104
     Restricted equity securities              1,632                    1,035
                                            --------                 --------
                                            $ 31,470                 $ 35,845
                                            ========                 ========

                                       31
<PAGE>
Maturities
----------

         The amounts of debt securities as of December 31, 2004 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 years 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        -%        $ 1,949       3.07%      $  6,950       3.83%
Mortgage-backed securities        -        -               -                     2,122       3.63
Municipals                        -        -               -          -            609       5.26
                              -----                                           --------       ----
  Total debt securities       $   -        -%        $ 1,949       3.07%      $  9,681       3.53%
                              =====                  =======                  ========
</TABLE>

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

<S>                           <C>             <C>                             <C>             <C>
U.S. Government agencies      $      -           -                            $  8,899        3.29%
Mortgage-backed securities      17,540        2.79                              19,662        2.88
Municipals                         668        5.69                               1,277        5.48
                              --------        ----                            --------        ----
  Total debt securities       $ 18,208        2.90%                           $ 29,838        3.11%
                              ========        ====                            ========        ====
</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.

                                       32
<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,
                                                  2004                  2003
                                               -------------------------------
                                                   (Dollars in Thousands)

         Commercial                            $  38,633             $  33,997
         Real estate-construction                 56,529                34,596
         Real estate-mortgage                     90,336                87,780
         Consumer installment and other           11,946                12,104
                                               ---------             ---------
                                                 197,444               168,477
         Less allowance for loan losses           (3,620)               (3,163)
                                               ---------             ---------
         Net loans                             $ 193,824             $ 165,314
                                               =========             =========


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

         Total loans as of December 31, 2004 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                                     $   29,173
         After one through five years                              8,285
         After five years                                          1,175
                                                              ----------
                                                              $   38,633
                                                              ----------

     Construction
         One year or less                                     $   40,964
         After one through five years                             15,247
         After five years                                            318
                                                              ----------
                                                              $   56,529
                                                              ----------

     Other
         One year or less                                     $   47,505
         After one through five years                             44,884
         After five years                                          9,893
                                                              ----------
                                                              $  102,282
                                                              ----------

     Total                                                    $  197,444
                                                              ==========


                                       33
<PAGE>
         The following table summarizes loans at December 31, 2004 with the due
dates after one year that have predetermined and floating or adjustable interest
rates.

                                                          (Dollars in Thousands)

         Predetermined interest rates                            $ 34,147
         Floating or adjustable interest rates                     45,655
                                                                 --------
                                                                 $ 79,802
                                                                 ========

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

         Information with respect to nonaccrual, past due, restructured and
other problem loans at December 31, 2004 and 2003 is as follows:

                                                                December 31,
                                                              2004        2003
                                                          ----------------------
                                                          (Dollars in Thousands)

         Nonaccrual loans                                  $ 1,462     $ 1,137
         Loans contractually past due ninety
              days or more as to interest or
              principal payments and still accruing            123          71
         Restructured loans                                      0           0
         Potential problem loans                                 0       2,727
         Interest income that would have been recorded
              on nonaccrual and restructured loans under
              original terms                                    30         147
         Interest income that was recorded on
              nonaccrual and restructured loans                  0           0

Potential problem loans are defined as loans about which we have serious doubt
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.

                                       34
<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,
                                                2004             2003
                                              -------------------------
                                               (Dollars in Thousands)

Average amount of loans outstanding           $179,930         $157,741
                                              ========         ========

Balance of allowance for loan losses
         at beginning of year                 $  3,163         $  2,126
                                              ========         ========

Loans charged off
         Commercial and financial                   30            1,828
         Real estate- mortgage                     148               77
         Installment                               169              754
                                              --------         --------
                                                   347            2,659
                                              --------         --------

Loans recovered
         Commercial and financial                   23               -
         Real estate mortgage                      142               -
         Installment                                29               19
                                              --------         --------
                                                   194               19
                                              --------         --------

Net charge-offs                                    152            2,640
                                              --------         --------

Additions to allowance charged to operating
         expense during year                       610            3,677
                                              --------         --------

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

Ratio of net loans charged off during the
         year to average loans outstanding        0.08%            1.67%
                                              ========         ========


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

                                       35
<PAGE>
review by the responsible lending officers and by senior management based upon
their judgment, our loan loss experience, current economic conditions that may
affect the borrower's ability to repay, lender requirements, the underlying
collateral value of the loans and other appropriate information. Management
relies predominantly on this ongoing review of the loan portfolio to assess the
risk characteristics of the portfolio in the aggregate and to determine
adjustments, if any, to our allowance for loan losses. Based upon this ongoing
review, we may identify loans that could be impaired. A loan is considered
impaired when it is probable that we will be unable to collect all principal and
interest due in accordance with the contractual terms of the loan agreement.
When we identify a loan as impaired, the allowance for loan losses is increased
if we determine that the amount of impairment is in excess of the allowance of
the allowance determined under our loan classification program. We maintain an
allowance for loan losses of no less than 1.0% of outstanding loans at all
times.

As of December 31, 2004 and 2003, 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, 2004                  December 31, 2003
                                               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                         $   760              21%           $   664             20%
Real estate - construction             724              20                633             21
Real estate - mortgage               1,846              51              1,645             52
Consumer installment
     loans and other                   290               8                221              7
                                   -------             ---            -------            ---
                                   $ 3,620             100%           $ 3,163            100%
                                   =======             ===            =======            ===
</TABLE>


                                       36
<PAGE>
                                    DEPOSITS

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

<TABLE>
<CAPTION>
                                                        Years Ended December 31,
                                                    2004                          2003
                                             Amount       Percent          Amount       Percent
                                           -----------------------------------------------------
                                                          (Dollars in Thousands)
<S>                                        <C>              <C>          <C>               <C>
Noninterest-bearing demand deposits        $ 20,944            -%        $ 17,275             -%
Interest-bearing demand deposits             92,900         1.47           78,905          1.83
Savings deposits                              3,017         0.25            2,323           .39
Time deposits                                74,656         2.68           69,483          3.49
                                           --------                      --------
                                           $191,517                      $167,986
                                           ========                      ========
</TABLE>

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

The amounts of time certificates of deposit issued in amounts of $100,000 or
more as of December 31, 2004 are shown below by category, which is based on time
remaining until maturity of (1) three months or less, (2) over three through six
months, (3) over six through twelve months, and (4) over twelve months.

                                                          (Dollars in Thousands)

     Three months or less                                        $  6,785
     Over three months through six months                          10,073
     Over six through twelve months                                11,761
     Over twelve months                                            20,318
                                                                 --------
              Total                                              $ 48,937
                                                                 ========


                    RETURN ON ASSETS AND STOCKHOLDERS' EQUITY

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

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

     Return on assets (1)                         .69%            (.31)%
     Return on equity (2)                        7.67            (2.88)
     Dividend payout ratio (3)                      -                -
     Equity to assets ratio (4)                  8.97            10.63

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

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






                      CHESTATEE BANCSHARES, INC.
                           AND SUBSIDIARIES

                     CONSOLIDATED FINANCIAL REPORT

                           DECEMBER 31, 2004





                                       38
<PAGE>
                           CHESTATEE BANCSHARES, INC.
                                AND SUBSIDIARIES

                          CONSOLIDATED FINANCIAL REPORT
                                DECEMBER 31, 2004




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


                                                                           Page
                                                                           ----

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

FINANCIAL STATEMENTS

     Consolidated balance sheets............................................F-2
     Consolidated statements of operations..................................F-3
     Consolidated statements of comprehensive income (loss).................F-4
     Consolidated statements of stockholders' equity........................F-5
     Consolidated statements of cash flows..................................F-6
     Notes to consolidated financial statements..................F-7 through 25




<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, 2004 and 2003,
and the related consolidated statements of operations, comprehensive income
(loss), stockholders' equity and cash flows for each of the two years in the
period ended December 31, 2004. 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, 2004 and 2003, and the
results of their operations and their cash flows for each of the two years in
the period ended December 31, 2004, in conformity with accounting principles
generally accepted in the United States of America.

                                          /s/ MAULDIN & JENKINS, LLC




Atlanta, Georgia
January 21, 2005


                                      F-1
<PAGE>
                           Chestatee Bancshares, Inc.
                                and Subsidiaries

                           Consolidated Balance Sheets
                           December 31, 2004 and 2003

<TABLE>
<CAPTION>
                                     Assets
                                     ------
                                                             2004             2003
<S>                                                    <C>              <C>
Cash and due from banks                                $   3,419,928    $   3,688,806
Interest-bearing deposits in banks                         6,350,302        1,893,603
Federal funds sold                                         4,091,000        5,938,000
Securities available-for-sale, at fair value              29,837,836       34,810,306
Restricted equity securities                               1,631,800        1,035,000

Loans                                                    197,443,733      168,476,894
Less allowance for loan losses                             3,620,445        3,162,548
                                                       -------------    -------------
          Loans, net                                     193,823,288      165,314,346
                                                       -------------    -------------

Premises and equipment                                     7,903,890        8,324,749
Other assets                                               3,589,962        4,967,289
                                                       -------------    -------------

          Total assets                                 $ 250,648,006    $ 225,972,009
                                                       =============    =============


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

Deposits
    Noninterest-bearing                                $  21,251,241    $  16,972,313
    Interest-bearing                                     179,142,600      166,565,903
                                                       -------------    -------------
          Total deposits                                 200,393,841      183,538,216
Other borrowings                                          26,200,000       20,700,000
Other liabilities                                          1,115,088          681,374
                                                       -------------    -------------
          Total liabilities                              227,708,929      204,919,590
                                                       -------------    -------------

Commitments and contingencies

Stockholders' equity
    Common stock, no par value; 20,000,000 shares
      authorized: 3,123,000 and 3,106,000 shares          21,554,341       21,414,341
      issued and outstanding
    Retained earnings (deficit)                            1,564,212          (83,346)
    Accumulated other comprehensive loss                    (179,476)        (278,486)
                                                       -------------    -------------
          Total stockholders' equity                      22,939,077       21,052,509
                                                       -------------    -------------

          Total liabilities and stockholders' equity   $ 250,648,006    $ 225,972,099
                                                       =============    =============
</TABLE>

                 See Notes to Consolidated Financial Statements

                                      F-2
<PAGE>
                           Chestatee Bancshares, Inc.
                                and Subsidiaries

                      Consolidated Statements of Operations
                     Years Ended December 31, 2004 and 2003

<TABLE>
<CAPTION>
                                                        ------------   ------------
                                                             2004           2003
                                                        ------------   ------------
<S>                                                     <C>            <C>
Interest income
    Loans                                               $ 11,617,123   $ 10,965,489
    Taxable securities                                     1,002,114        695,376
    Nontaxable securities                                     37,516         14,502
    Federal funds sold                                       121,385        125,619
    Interest-bearing deposits in banks                        50,980         29,133
                                                        ------------   ------------
              Total interest income                       12,829,118     11,830,119
                                                        ------------   ------------

Interest expense
    Deposits                                               3,373,423      3,881,278
    Other borrowings                                         597,147        290,856
                                                        ------------   ------------
              Total interest expense                       3,970,570      4,172,134
                                                        ------------   ------------

              Net interest income                          8,858,548      7,657,985
Provision for loan losses                                    609,993      3,676,614
                                                        ------------   ------------
              Net interest income after
                provision for loan losses                  8,248,555      3,981,371
                                                        ------------   ------------

Other income
      Service charges and fees                               762,015        852,391
      Gains on sales of securities available-for-sale          2,684         53,637
      Other operating income                                 346,514        516,892
                                                        ------------   ------------
              Total other income                           1,111,213      1,422,920
                                                        ------------   ------------

Other expenses
    Salaries and employee benefits                         3,596,956      3,197,285
    Occupancy and equipment expenses                       1,023,182      1,046,668
    Other operating expenses                               2,236,587      2,207,406
                                                        ------------   ------------
              Total other expenses                         6,856,725      6,451,359
                                                        ------------   ------------

              Net income (loss) before income tax
                  expense (benefit)                        2,503,043     (1,047,068)

Income tax expense  (benefit)                                855,485       (423,378)
                                                        ------------   ------------

              Net income (loss)                            1,647,558       (623,690)
                                                        ============   ============


Basic earnings (losses) per share                       $       0.53   $      (0.20)
                                                        ============   ============

Diluted earnings (losses) per share                     $       0.52   $      (0.20)
                                                        ============   ============
</TABLE>

                 See Notes to Consolidated Financial Statements

                                      F-3
<PAGE>
                           Chestatee Bancshares, Inc.
                                and Subsidiaries

             Consolidated Statements of Comprehensive Income (Loss)
                     Years Ended December 31, 2004 and 2003

<TABLE>
<CAPTION>
                                                                  2004           2003
                                                              -----------    -----------
<S>                                                           <C>            <C>
Net income (loss)                                             $ 1,647,558    $  (623,690)

Other comprehensive income:
        Unrealized holding gains (losses) on securities
           available-for-sale arising during period, net of
           taxes (benefits) of $61,063 and $(166,654)             100,674       (305,411)

        Reclassifications adjustment for gains realized in
           net income, net of taxes of $1,020 and $20,382          (1,664)       (33,255)
                                                              -----------    -----------

Other comprehensive income (loss)                                  99,010       (338,666)
                                                              -----------    -----------

Comprehensive income (loss)                                   $ 1,746,568    $  (962,356)
                                                              ===========    ===========
</TABLE>

                 See Notes to Consolidated Financial Statements

                                      F-4
<PAGE>
                           Chestatee Bancshares, Inc.
                                and Subsidiaries

                 Consolidated Statements of Stockholders' Equity
                     Years Ended December 31, 2004 and 2003

<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, 2002          2,925,690     $ 19,618,713    $   540,344    $   60,180      $ 20,219,237
    Net income                              -                -      (623,690)             -          (623,690)
    Issuance of common stock          180,310        1,795,628              -             -         1,795,628
    Other comprehensive income              -                -              -      (338,666)         (338,666)
                                  -----------     ------------    -----------    -----------     ------------
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
    Issuance of common stock           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
</TABLE>


                 See Notes to Consolidated Financial Statements

                                      F-5
<PAGE>
                           Chestatee Bancshares, Inc.
                                and Subsidiaries

                      Consolidated Statements of Cash Flows
                     Years Ended December 31, 2004 and 2003

<TABLE>
<CAPTION>
                                                                        2004           2003
                                                                    -----------    -----------
<S>                                                                 <C>            <C>
OPERATING ACTIVITIES
Net income  (loss)                                                  $ 1,647,558    $  (623,690)
Adjustments to reconcile net income (loss) to net cash
    provided by operating
    activities:
    Depreciation                                                        533,308         552,267
    Deferred Income taxes                                              (166,842)       (118,016)
    Provision for loan losses                                           609,993       3,676,614
    (Gain) loss on other real estate owned                              (63,462)         41,015
    Amortization and accretion                                          345,495         154,013
    Gain on sale of securities available-for-sale                        (2,684)        (53,637)
    Increase in interest receivable                                    (134,090)        (45,369)
    Increase (decrease) in interest payable                              81,949        (105,667)
    Net other operating activities                                    1,827,081      (2,347,038)
                                                                    -----------     -----------

          Net cash provided by operating activities                   4,678,306       1,130,492
                                                                    -----------     -----------

INVESTING ACTIVITIES
    Net increase in interest-bearing deposits in banks               (4,456,699)       (565,062)
    Net decrease in federal funds sold                                1,847,000           8,000
    Purchases of securities available-for-sale                       (6,829,727)    (40,717,307)
    Proceeds from maturities of securities available-for-sale         7,171,752      15,136,253
    Proceeds from sales of securities available-for-sale              4,446,717       4,713,214
    Proceeds from maturities of securities held-to-maturity                   -         399,940
    Purchase of restricted equity securities                           (596,800)       (392,500)
    Net increase in loans                                           (29,756,435)    (28,791,771)
    Proceeds from sales of other real estate owned                      843,832               -
    Proceeds from sales of premises and equipment                        37,711               -
    Purchase of premises and equipment                                 (150,160)     (2,811,535)
                                                                   ------------    ------------

              Net cash used in investing activities                 (27,442,809)    (53,020,768)
                                                                   ------------    ------------

FINANCING ACTIVITIES
    Net increase in deposits                                         16,855,625      39,817,335
    Net proceeds from other borrowings                                5,500,000      10,450,000)
    Proceeds from sale of common stock                                        -       1,743,100
    Net increase due to exercise of options                             140,000          52,528
                                                                   ------------    ------------

              Net cash provided by financing activities              22,495,625      52,062,963
                                                                   ------------    ------------

Net increase (decrease) in cash and due from banks                     (268,878)        172,687

Cash and due from banks, beginning of period                          3,688,806       3,516,119
                                                                   ------------    ------------

Cash and due from banks, end of period                             $  3,419,928    $  3,688,806
                                                                   ============    ============

SUPPLEMENTAL DISCLOSURES
    Cash paid for:
          Interest                                                 $  3,888,621    $  4,277,801
          Income taxes                                             $    651,000    $  1,358,681
    Principal balances of loans transferred to other real estate   $    707,529    $     85,901
    Financed sales of other real estate owned                      $     70,029    $    134,930
</TABLE>

                 See Notes to Consolidated Financial Statements

                                      F-6
<PAGE>
                   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, deposits and other borrowings are reported net.

         The Bank is required to maintain reserve balances in cash or on deposit
         with the Federal Reserve Bank, based on a percentage of deposits. The
         total of those reserve balances was approximately $845,000 at December
         31, 2004.

         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.

                                      F-7
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         Securities (Continued)

         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. 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.

         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 flows discounted at the loan's
         effective interest rate, the loan's obtainable market price, or the
         fair value of the collateral if the loan is collateral dependent. The
         amount of impairment, if any, and any subsequent changes are included
         in the allowance for loan losses. 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-8
<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, 2004. The carrying amount of other
         real estate owned at December 31, 2003 was $136,303.

         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

         At December 31, 2004, 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. No stock-based employee
         compensation cost related to those plans is reflected in net income, as
         all options granted under those plans had an exercise price equal to
         the market value of the underlying stock on the date of grant. The
         company also has remaining options outstanding that were granted to
         certain executive officers under employee agreements. Options earned
         under those agreements were granted at prices based upon the year-end
         book value of the Company. The Company recognized no compensation costs
         under the employee agreements during the years ended December 31, 2004
         and 2003. 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-9
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         Stock Based Compensation (Continued)

<TABLE>
<CAPTION>
                                                                           ---------------------------
                                                                               2004            2003
                                                                           -----------     -----------
<S>                                                                        <C>             <C>
         Net income (loss), as reported                                    $ 1,647,558     $ (623,690)
         Deduct: Total stock-based employee compensation
            expense determined under fair value based
            method for all awards, net of related tax effects                 (24,261)        (74,801)
                                                                           ------------    ------------
         Pro forma net income (loss)                                       $ 1,623,297     $ (698,491)
                                                                           ============    ============
         Earnings (losses) per share:
              Basic - as reported                                          $       .53     $     (.20)
                                                                           ============    ============
              Basic - pro forma                                            $       .52     $     (.23)
                                                                           ============    ============
              Diluted - as reported                                        $       .52     $     (.20)
                                                                           ============    ============
              Diluted - pro forma                                          $       .52     $     (.22)
                                                                           ============    ============
</TABLE>

         Earnings (Losses) Per Share

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

         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-10
<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, 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
                                 ============   ============    ============    ============

   December 31, 2003:
   U.S. Treasury and U.S.
      Government agencies        $  9,654,284   $     12,082    $   (122,449)   $  9,543,917
   State, county and municipal      1,140,818              -         (37,099)      1,103,719
      Securities
   Mortgage-backed securities      24,444,142          8,961        (290,433)     24,162,670
                                 ------------   ------------    ------------    ------------
                                 $ 35,239,244   $     21,043    $   (449,981)   $ 34,810,306
                                 ============   ============    ============    ============
</TABLE>

     Securities with a carrying value of $25,489,000 and $26,102,539 at December
     31, 2004 and 2003 were pledged to secure public deposits and for other
     purposes required or permitted by law. At December 31, 2004, there were no
     securities that have been in a continuous unrealized loss position for more
     than twelve months.

     The amortized cost and fair value of debt securities as of December 31,
     2004 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                     1,991,429       1,949,180
                                                   7,553,541       7,558,207
    Due from five to ten years
    Due after ten years                              679,284         668,562
                                                -------------   -------------
                                                  10,224,254      10,175,949
    Mortgage-backed securities                    19,883,467      19,661,887
                                                -------------   -------------
                                                  30,107,721      29,837,836
                                                =============   =============

                                      F-11
<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, 2004.
<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, 2004:

   U.S. Treasury and U.S.
      Government agencies                     $  (58,017)   $  4,650,820     $    -     $      -
   State, county  and municipal securities       (17,250)        542,750          -            -
   Mortgage-backed securities                   (224,807)     17,242,292          -            -
                                              ------------  -------------    -------    ---------
                                              $ (300,074)   $ 22,435,862     $    -     $      -
                                              ============  =============    =======    =========
</TABLE>

     Also at December 31, 2004, there were twenty-nine securities with
     unrealized losses with no single security having depreciation of more than
     3.27% from the Company's amortized cost basis.


NOTE 3.  LOANS

         The composition of loans is summarized as follows:

<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                        -------------------------------
                                                                              2004              2003
                                                                        -------------     -------------
<S>                                                                     <C>               <C>
  Commercial and industrial                                             $  38,633,000     $  33,997,000
  Real estate - construction                                               56,529,000        34,596,000
  Real estate - mortgage                                                   90,336,000        87,780,000
  Consumer and other                                                       12,051,000        12,202,000
                                                                        --------------    --------------
                                                                          197,549,000       168,575,000
  Unearned income                                                           (105,267)          (98,106)
  Allowance for loan losses                                               (3,620,445)       (3,162,548)
                                                                        --------------    --------------
  Loans, net                                                            $ 193,823,288     $ 165,314,346
                                                                        ==============    ==============
</TABLE>

         Changes in the allowance for loan losses are as follows:

<TABLE>
<CAPTION>
                                                                             Years Ended December 31,
                                                                        --------------------------------
                                                                              2004              2003
                                                                        --------------    --------------
<S>                                                                     <C>               <C>
   Balance, beginning of year                                           $   3,162,548     $   2,126,188
      Provision for loan losses                                               609,993         3,676,614
      Loans charged off                                                     (346,285)       (2,659,426)
      Recoveries of loans previously charged off                              194,189            19,172
                                                                        --------------    --------------
   Balance, end of year                                                 $   3,620,445     $   3,162,548
                                                                        ==============    ==============
</TABLE>

                                      F-12
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3.  LOANS (Continued)

         The total recorded investment in impaired loans was $1,462,312 and
         $1,136,648 at December 31, 2004 and 2003, 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, 2004 and 2003. The average recorded
         investment in impaired loans for 2004 and 2003 was $846,241 and
         $1,931,764, respectively. Interest income recognized for cash payments
         received on impaired loans was not material for the years ended
         December 31, 2004 and 2003.

         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, 2004 are as follows:

   Balance, beginning                                           $ 17,762,699
      Advances                                                    14,769,635
      Repayments                                                (13,537,152)
                                                                -------------
   Balance, ending                                              $ 18,995,182
                                                                =============


NOTE 4.  PREMISES AND EQUIPMENT

         Premises and equipment are summarized as follows:

                                                          December 31,
                                                -----------------------------
                                                      2004             2003
                                                ------------    --------------

  Land                                          $   1,405,872    $   1,405,872
  Buildings                                         5,514,445        5,514,445
  Equipment                                         2,944,381        2,853,365
                                                --------------   -------------
                                                    9,864,698        9,773,682
  Accumulated depreciation                        (1,960,808)      (1,448,933)
                                                --------------   -------------
                                                $   7,903,890    $   8,324,749
                                                ==============   =============

         Lease

         The Company leased certain of its administrative office facilities
         under a noncancelable operating lease agreement from an entity owned by
         the Board of Directors. The Company also leased certain of its branch
         facilities under various other noncancelable operating lease
         agreements. In September of 2003, the Company purchased the building
         housing its administrative office facilities. The Company's operating
         lease of its branch facility expired March 31, 2003. The lease was not
         renewed. At December 31, 2004, the Company was not under any lease
         agreements.

         Total rental expense is summarized as follows:

                                                    Years Ended December 31,
                                                    ------------------------
                                                     2004            2003
                                                    --------      ---------

  Related party                                     $    -        $  30,375
  Other third parties                                    -            7,500
                                                    -------       ---------
                                                    $    -        $  37,875
                                                    =======       =========

                                      F-13
<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, 2004 and 2003 was $48,936,893 and $29,515,000,
         respectively. The Company had brokered certificates of deposit at
         December 31, 2004 and 2003 of $11,500,000 and $5,000,000, respectively.
         The scheduled maturities of time deposits at December 31, 2004 are as
         follows:

           2005                                                    51,833,151
           2006                                                    27,102,420
           2007                                                     7,320,685
           2008                                                     2,638,446
           2009                                                     2,952,116
                                                                --------------
                                                                $  91,846,818
                                                                ==============

         At December 31, 2004 and 2003, overdraft demand deposits reclassified
         to loans totaled $32,634 and $49,676, respectively.


NOTE 6.  OTHER BORROWINGS

         Other borrowings consist of the following:

<TABLE>
<CAPTION>
                                                                                               December 31,
                                                                                    --------------------------------
                                                                                          2004              2003
                                                                                    --------------    --------------
<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     $   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         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         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                 -
   Fixed rate advance from Federal Home Loan Bank with interest
     Payable monthly at 2.68%, matures January 29, 2007.                                1,000,000                 -
                                                                                    --------------    --------------
                                                                                    $  26,200,000     $  20,700,000
                                                                                    ==============    ==============
</TABLE>

                                      F-14
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6.  OTHER BORROWINGS (Continued)

         The advances from the Federal Home Loan Bank are secured by a certain
         qualifying loans of approximately $10 million, approximately $18
         million in mortgage-backed securities, and Federal Home Loan Bank stock
         of $1.6 million.

         Contractual maturities of other borrowings as of December 31, 2004 are
         as follows:


              2005                                               13,950,000
              2006                                                8,750,000
              2007                                                2,250,000
              2008                                                1,250,000
                                                              --------------
                                                              $  26,200,000
                                                              ==============


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 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, 2004 and 2003 is $1,111,946 and
         $1,065,985, respectively. Income recognized on the policies amounted to
         $45,961 and $36,150. The balance of deferred compensation included in
         other liabilities at December 31, 2004 and 2003 is $166,087 and
         $95,914, respectively. Expense recognized for deferred compensation was
         $70,173 and $79,714 for the years ended December 31, 2004 and 2003,
         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 $47,190 and $45,237 for the years ended
         December 31, 2004 and 2003, respectively.

NOTE 8.  STOCK BASED COMPENSATION

         The Company has two stock option plans and has reserved a total of
         400,000 options, of which 100,000 are subject to shareholder approval,
         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.

                                      F-15
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8.  STOCK-BASED COMPENSATION (Continued)

         Other pertinent information related to the options follows:

<TABLE>
<CAPTION>
                                                          2004                         2003
                                                --------------------------- ---------------------------
                                                                 Weighted-                   Weighted-
                                                                  Average                     Average
                                                                  Exercise                    Exercise
                                                   Shares          Price       Shares         Price
                                                -----------   ------------- ------------  -------------
<S>                                              <C>               <C>       <C>            <C>
  Under option, beginning of year                  275,000          8.20       270,000        8.06
     Granted                                       135,000         10.00        11,000       10.00
     Exercised                                    (17,000)          8.24       (6,000)        5.26
     Cancelled                                     (5,000)         10.00
                                                -----------                  ----------
  Under option, end of year                        388,000          8.80       275,000        8.20
                                                ===========                  ==========

  Exercisable, end of year                         259,667          8.21       260,001        8.09
                                                ===========                  ==========
  Weighted-average fair value of options
     granted during the year                     $    3.90                    $   3.43
</TABLE>

         Information pertaining to options outstanding at December 31, 2004 is
         as follows:

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

     <S>                         <C>            <C>             <C>             <C>             <C>
       $4.75 - $5.82               16,000       5.50 years      $  4.89          16,000         $  4.89
       $8.00 - $10.00             372,000       8.20 years         8.97         243,667            8.42
                                ---------                                     ---------
                                  388,000       8.09 years         8.80         259,667            8.21
                                =========                                      =========
</TABLE>

         The fair value of the oions 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,
                                                                      ---------------------------
                                                                         2004              2003
                                                                      -----------       ---------

<S>                                                                   <C>                <C>
   Dividend yield (as a percent of the fair value of the stock)              %                 0%
   Expected life                                                      10 years           10 years
   Expected volatility                                                   0.01%              0.01%
   Risk-free interest rate                                               5.00%              4.25%
</TABLE>


                                      F-16
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9.  INCOME TAXES

         Income tax expense consists of the following:

                                            Years Ended December 31,
                                          ----------------------------
                                             2004               2003
                                          -----------       ---------

   Current                                $ 1,022,327       $ (305,362)
   Deferred                                 (166,842)         (118,016)
                                          -----------       -----------
        Income tax expense (benefit)      $   855,485       $ (423,378)
                                          ===========       ===========

NOTE 9.  INCOME TAXES (continued)

         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:


                                             2004                2003
                                           ----------------------------
                                            Amount             Amount
                                           --------          ----------

Income taxes at statutory rate            $ 851,034          $(356,002)
Tax-free income                             (48,047)           (34,261)
Surtax exemption                              5,107              9,981
State income tax (benefit)                   81,401            (36,177)
Other items                                 (34,010)            (6,918)
                                          ---------          ---------
     Income tax expense (benefit)         $ 855,485          $(423,378)
                                          =========          =========

       The components of deferred income taxes are as follows:

                                                    December 31,
                                          ------------------------------
                                             2004                2003
                                          ----------          ----------
Deferred tax assets:
   Loan loss reserves                     $1,066,668          $  871,270
   Deferred loan fees                         39,623              36,523
   Preopening and organization costs               -               4,337
   Stock options                              12,740              12,740
   Deferred compensation                      62,674              36,194
   Nonaccrual loans                           11,219              36,362
   Contributions                                   -              17,225
   Other                                       5,844              14,690
   Securities available-for-sale              89,389             150,452
                                          ----------          ----------
                                           1,288,157           1,179,793
                                          ----------          ----------
Deferred tax liabilities:
   Depreciation                              343,076             340,491
Net deferred tax assets                   $  945,081          $  839,302
                                          ==========          ==========

                                      F-17
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 10. EARNINGS (LOSSES) PER SHARE

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

                                                    Years Ended December 31,
                                                   -------------------------
                                                      2004           2003
                                                   -----------    ----------

Basic Earnings (Losses) Per Share:
   Weighted average common shares outstanding        3,108,973     3,062,055
                                                   ===========   ===========

   Net income (loss)                               $ 1,647,558   $  (623,690)
                                                   ===========   ===========

   Basic earnings (losses) per share               $       .53   $      (.20)
                                                   ===========   ===========

Diluted Earnings (Losses) Per Share:
   Weighted average common shares outstanding        3,108,973     3,062,055
   Net effect of the assumed exercise of stock
      options based on the treasury stock method
      using average market prices for the year          40,907        51,414
                                                   -----------   -----------
   Total weighted average common shares and
      common stock equivalents outstanding           3,149,880     3,113,469
                                                   ===========   ===========

   Net income (loss)                               $ 1,647,558   $  (623,690)
                                                   ===========   ===========

   Diluted earnings (losses) per share             $       .52   $      (.20)
                                                   ===========   ===========


NOTE 11. COMMITMENTS AND CONTINGENCIES

         Loan Commitments

         The Company is party to financial instruments with off-balance sheet
         risk in the normal course of business to meet the financing needs of
         its customers. These financial instruments may include commitments to
         extend credit, standby letters of credit and credit card commitments.
         Such commitments involve, to varying degrees, elements of credit risk
         and interest rate risk in excess of the amount recognized in the
         balance sheets. The 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,
                                                  ----------------------------
                                                       2004            2003
                                                  -------------   ------------

    Commitments to extend credit                  $ 28,231,000    $ 32,209,000
    Financial standby letters of credit              1,411,000       1,408,000
    Credit card commitments                          3,837,000       3,775,000
                                                  -------------   ------------
                                                  $ 33,479,000    $ 37,392,000
                                                  =============   ============

                                      F-18
<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, 2004 and 2003, 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, 2004 and 2003.

         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-six 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 $5,640,000.

NOTE 13. REGULATORY MATTERS

         The Bank is subject to certain restrictions on the amount of dividends
         that may be declared without prior regulatory approval. At December 31,
         2004, no dividends could be paid without regulatory approval.

                                      F-19
<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, 2004 and 2003, the Company and the Bank met all capital adequacy
         requirements to which they are subject.

         As of December 31, 2004, 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, 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%

December 31, 2003:
Total Capital to Risk Weighted Assets
   Consolidated                                    $  23,699      12.55%    $ 15,105       8%     $     N/A       N/A
   Bank                                            $  23,286      12.34%    $ 15,097       8%     $  18,872       10%
Tier I Capital to Risk Weighted Assets
   Consolidated                                    $  21,330      11.30%    $  7,552       4%     $     N/A       N/A
   Bank                                            $  20,917      11.08%    $  7,549       4%     $  11,323        6%
Tier I Capital to Average Assets
   Consolidated                                    $  21,330       9.37%    $  9,103       4%     $     N/A       N/A
   Bank                                            $  20,917       9.20%    $  9,098       4%     $ 11,373         5%
</TABLE>

                                      F-20
<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-21
<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,
                                          --------------------------------------------------------------------
                                                        2004                               2003
                                          ---------------------------------   --------------------------------
                                             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                   $   13,861,230    $   13,861,230    $   11,520,409   $   11,520,409
      Securities available-for-sale           29,837,836        29,837,836        34,810,306       34,810,306
      Restricted equity securities             1,631,800         1,631,800         1,035,000        1,035,000
      Loans                                  197,443,733       196,317,000       168,476,894      169,021,000
      Accrued interest receivable              1,253,602         1,253,602         1,119,512        1,119,512

   Financial liabilities:
      Deposits                               200,393,841       199,995,000       183,538,216      184,558,430
      Other borrowings                        26,200,000        25,645,000        20,700,000       20,458,000
      Accrued interest payable                   346,844           346,844           264,895          264,895
</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-22
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 15. SUPPLEMENTAL SEGMENT INFORMATION (Continued)

<TABLE>
<CAPTION>
                                                                    INDUSTRY SEGMENTS
                                  ------------------------------------------------------------------------------------------
       For the Year Ended           Commercial                                      All
       December 31, 2004              Banking       Mortgage       Financial       Other       Eliminations        Total
   ---------------------------    ----------------  ---------      ---------     ---------     ------------    -------------

<S>                               <C>                 <C>          <C>           <C>           <C>             <C>
   Interest income                $   12,829,118            -      $      -      $      -      $        -      $  12,829,118
   Interest expense                    3,970,570            -             -             -               -          3,970,570
   Net interest income (expense)       8,858,548            -             -             -               -          8,858,548
   Intersegment net interest
       income (expense)                         -           -             -             -               -                  -
   Other revenue from external
       sources                         1,044,864       41,454        24,895             -               -          1,111,213
   Depreciation                          533,308            -             -             -               -            533,308
   Provision for loan losses             609,993            -             -             -               -            609,993
   Segment profit (loss)               2,494,265       41,254        24,751       (57,227)              -          2,503,043
   Segment assets                    250,575,047      289,721        37,499       268,063        (522,324)       250,648,006
   Expenditures for premises
       and equipment                     150,160            -             -             -               -            150,160
</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,
                                                     --------------------------
                                                         2004           2003
                                                     ---------       ---------
    Other income:
       Mortgage loan origination fees                $  41,454       $ 203,780
       Gain on sale of loans                            11,799         149,641
    Other expenses:
       Legal and professional                          171,339         233,761
       Stationery and supplies                         170,730         188,132
       Data processing                                 339,542         338,240
       Other losses                                     36,748         169,399



                                      F-23
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17. 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, 2004 and 2003:


                            CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                            2004           2003
                                                                       ------------    ------------
<S>                                                                    <C>             <C>
Assets
  Cash                                                                 $    221,817    $     97,676
  Investment in subsidiaries                                             22,704,774      20,922,574
  Other assets                                                               46,246          66,019
                                                                       ------------    ------------

        Total assets                                                   $ 22,972,837    $ 21,086,269
                                                                       ============    ============

Liabilities
  Other liabilities                                                    $     33,760    $     33,760
                                                                       ------------    ------------

Stockholders' equity                                                     22,939,077      21,052,509
                                                                       ------------    ------------

        Total liabilities and stockholders' equity                     $ 22,972,837    $ 21,086,269
                                                                       ============    ============
</TABLE>


                  CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                            2004            2003
                                                                       ------------    ------------
<S>                                                                    <C>             <C>
Income:
Interest Income                                                        $          -    $      1,132
Dividends from subsidiary                                                         -               -
Other Income                                                                      -               -
                                                                       ------------    ------------
                                                                                              1,132
                                                                       ------------    ------------

Expenses:
  Employee benefits                                                               -               -
  Interest                                                                        -               -
  Other                                                                      57,227          72,753
                                                                       ------------    ------------
               Total expenses                                                57,227          72,753
                                                                       ------------    ------------

               Income (loss) before income tax benefits and equity
                 in undistributed income (distributions in excess
                 of loss) of subsidiaries                                   (57,227)        (71,621)

Income tax benefits                                                         (21,595)        (27,030)
                                                                       ------------    ------------

               Income (loss) before equity in undistributed
                 income (distributions in excess of
                 loss) of subsidiaries                                      (35,632)        (44,591)

Equity in undistributed income (distributions in excess subsidiaries
   of loss) of subsidiaries                                               1,683,190        (579,099)
                                                                       ------------    ------------

               Net income (loss)                                       $  1,647,558    $   (623,690)
                                                                       ============    ============
</TABLE>

                                     F-24
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17. PARENT COMPANY FINANCIAL INFORMATION (Continued)

                       CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                2004           2003
                                                            -----------     -----------
<S>                                                         <C>            <C>
OPERATING ACTIVITIES
  Net income (loss)                                         $ 1,647,558    $  (623,690)
  Adjustments to reconcile net income (loss) to
     net cash provided by (used in) operating activities:
     (Undistributed income) distributions in excess
        of loss of subsidiaries                              (1,683,190)      (579,099)
     Net other operating activities                              19,773        (54,189)
                                                            -----------    -----------

          Net cash used in operating activities                 (15,859)       (98,780)
                                                            -----------    -----------

INVESTING ACTIVITIES
  Investment in subsidiaries                                          -     (2,380,000)
                                                            -----------    -----------

          Net cash used in investing activities                       -     (2,380,000)
                                                            -----------    -----------

FINANCING ACTIVITIES
  Exercise of stock options                                     140,000              -
  Proceeds from issuance of common stock                              -      1,795,628
                                                            -----------    -----------

          Net cash provided by financing activities             140,000      1,795,628
                                                            -----------    -----------

Net increase (decrease) in cash                                 124,141       (683,152)

Cash at beginning of year                                        97,676        780,828
                                                            -----------    -----------

Cash at end of year                                         $   221,817    $    97,676
                                                            ===========    ===========
</TABLE>

                                      F-25

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

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


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 other information required to be disclosed in a
report on Form 8-K to disclose.


                                    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.

                                       40
<PAGE>
         Each director of the Company also serves as a director of the Bank,
Chestatee Financial and Chestatee Mortgage. Except as otherwise disclosed, there
are no family relationships between any of our directors or executive officers,
and no director is a member of the board of directors of a publicly held company
required to file reports with the Securities and Exchange Commission. Our
directors are elected by a majority of votes cast at the annual meeting of the
shareholders and serve until the next annual meeting of shareholders and until a
successor is duly elected and qualified.

Directors
---------

         R. Millard Bowen, born April 6, 1942, is the owner of Bowen & Bowen
Construction. 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.


                                       41
<PAGE>
         J. Philip Hester, Sr., born January 23, 1953, is the President and
Chief Executive Officer of the Bank, Chestatee Financial and Chestatee Mortgage
in addition to serving as a member of the Board of Directors. He served as
President, Chief Executive Officer, and Director of the Waycross Company & Trust
from 1987 to 1990 and has been engaged in the Banking business in various
capacities since 1975. He was President, Chief Executive Officer, and Director
of the First Community Bank of Dawsonville until his resignation to participate
in organization of the Company. He is a graduate of the University of Georgia
and has completed courses at the School of Banking of the South (Louisiana State
University) and the University of Oklahoma Commercial Lending School. Mr. Hester
has served as a director of the Company and 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. He is a member of the Dawson County Rotary Club. 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.


                                       42
<PAGE>
         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.

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 serving 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 Senior 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.


                                       43
<PAGE>
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, 2004, 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 David Johnson filed one Form 4 for a
single transaction after its due date.

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

         The Board of Directors has adopted, effective December 31, 2004, 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

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.

Audit Committee
---------------

         The Board of Directors holds regularly scheduled meetings monthly and
annual meetings are called from time to time as needed. Thirteen 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 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

                                       44
<PAGE>
Charter. The Audit Committee consists of Messrs. G. Grogan, Head, Howard and
McRae. The Audit Committee met seven times in 2004.

         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 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, 2004:

     o    The Audit Committee has reviewed and discussed with the Company's
          management the Company's fiscal 2004 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 2004 audited financial statements be included in the
          Company's Annual Report on Form 10-KSB for the fiscal year ended
          December 31, 2004.

         The Compensation Committee is composed of Messrs. Head, McRae and
Wallace. That committee, which met two times in 2004, reviews and evaluates the
compensation policy of the Company, including bonuses, option grants, and
director compensation.

         The Nominating Committee is comprised of Messrs. McRae, Mills and Jim
Grogan. The committee met once. Prior to the appointment of the Nominating
Committee, the Executive Committee consisting of Messrs. Bowen, Hester, Wallace
and Johnson served as the nominating committee. That committee met once in 2004.


                                       45
<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, 2004, and all
cash and cash equivalent forms of compensation received by the chief executive
officer and all named executive officers of the Company as a group.

<TABLE>
<CAPTION>
                                                  SUMMARY COMPENSATION TABLE
                                                                                                             LONG-TERM COMPENSATION

                                                                                                            AWARDS           PAYOUTS
     (a)                    (b)        (c)          (d)             (e)              (f)            (g)        (h)          (i)
NAME AND                                                        OTHER ANNUAL      RESTRICTED      OPTION      LTIP         OTHER
PRINCIPAL POSITION         YEAR      SALARY        BONUS       COMPENSATION(4)   STOCK AWARDS      SARs      PAYOUTS    COMPENSATION

<S>                        <C>       <C>          <C>                <C>               <C>        <C>           <C>      <C>
J. Philip Hester, Sr.      2004      $172,000     $6,913             -                 -          50,000        -        $112,778(1)
CEO, President,            2003      $163,451     $6,585             -                 -            -           -        $ 79,826(2)
Director                   2002      $150,525     $6,272             -                 -            -           -        $ 45,249(3)

James M. Curry             2004      $113,750     $4,594             -                 -          30,000        -        $ 65,854(1)
Executive VP               2003      $108,000     $4,375             -                 -            -           -        $  4,629(2)
                           2002      $100,000     $4,167             -                 -          15,000        -        $ 15,417

Deborah F. McLeod          2004      $113,750     $4,594             -                 -          30,000        -        $ 60,374(1)
CFO, Senior VP             2003      $108,000     $4,375             -                 -            -           -        $      0
                           2002      $100,000     $4,167             -                 -          10,000        -        $ 10,406
</TABLE>

(1)   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.
(2)   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.
(3)   The Company has accrued a deferred compensation expense under the defined
contribution plan totaling $12,960, accrued a bonus totaling $27,847, and an
automobile allowance totaling $2,938 and contributed to its 401(k) plan for
eligible employees $4,442 for Mr. Hester during the fiscal year ended December
31, 2002. The Company has accrued a bonus totaling $15,417 and $10,406 for Mr.
Curry and Ms. McLeod, respectively.
(4)   Perquisites totaling less than the smaller of $50,000 or 10% of the total
salary and bonus for any of the executive officers has been omitted.

                                       46
<PAGE>
         The following table sets forth the individual grants of stock options
made during the last fiscal year to each named executive officer.

<TABLE>
<CAPTION>
                                          OPTIONS/SAR GRANTS IN LAST FISCAL YEAR

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

<S>                          <C>                           <C>                    <C>                 <C>  <C>
James M. Curry               30,000                        24%                    $10.00              8/17/04

J. Philip Hester, Sr.        50,000                        40%                    $10.00              8/17/04

Deborah F. McLeod            30,000                        24%                    $10.00              8/17/04
</TABLE>





                                       47
<PAGE>
Compensation of Directors
-------------------------

         The Company and the Bank pay each director $550 for each Board of
Directors meeting attended. Members of the various committees are also paid $50
each month for their service on the committee (except for the members of the
Loan Committee who are each paid $150 each month for their service). The
directors are also entitled to participate in the 2000 Non-Employee Stock Option
Plan approved by our shareholders at our last annual meeting. Directors may also
be reimbursed from time to time for expenses related to service as a member of
the Board of Directors.

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

         Each director (other than Mr. Hester, an employee of the Company and
its subsidiaries) was granted an option to acquire 15,000 shares of our common
stock in the year ended December 31, 2000 and 1,000 shares of our common stock
each in the years ended December 31, 2001, 2002, 2003 and 2004. The options
granted in 2000 have an exercise price of $8.00 per share and can be exercised
at any time prior to October 17, 2010. The options granted in 2001, 2002, 2003
and 2004 have an exercise price of $10.00 per share and can be exercised at any
time prior to January 1, 2011, 2012, 2013 and 2014, respectively. No director
has as yet exercised his option. In addition, each director will be granted as
of the first business day of each calendar year after December 31, 2002 an
option to purchase an additional 1,000 shares of our common stock at an exercise
price of no less than the average market price of the common stock on the date
of the grant and exercisable within 10 years from the date of the grant.

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

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

                                       48
<PAGE>
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, 2004 is $685,516 and the income recognized on the
policies amounted to $22,788 for the year ended December 31, 2004. The deferred
compensation liability was $142,430 and expense recognized was $46,516 at and
for the year ended December 31, 2003. 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 50,000
shares of our common stock. The exercise price of the options is $10 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 42,000 shares
of our common stock. The exercise price of the options is $8 per share, the fair
market value per share of our common stock at the time the options were granted,
payable in cash. The option expires ten years after the date granted. As of
December 31, 2004, Mr. Hester had already earned options to acquire up to 16,000
shares of the common stock under his original employment agreement after giving
effect to the two-for-one stock split in October 2000.

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

         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, 2004 is $403,258 and the income
recognized on the policies amounted to $23,172 for the year ended December 31,
2004. The deferred compensation liability was $23,657 and expense recognized was
$23,657 at and for the year ended December 31, 2003.In addition to his salary
and customary benefits, Mr. Curry was granted an option to acquire up to 30,000
shares of the Company's common stock, vesting one fifth annually beginning
August 17, 2005. Mr. Curry had previously been granted 15,000 shares of the
Company's common stock, which were fully vested at December 31, 2004. The
exercise price of the options is $10 per share, the fair market value per share

                                       49
<PAGE>
of our common stock at the time the options were granted, payable in cash. The
option expires ten years after the date granted.

         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. 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 30,000 shares of the Company's
common stock, vesting one fifth annually beginning August 17, 2005. Ms. McLeod
had previously been granted 10,000 shares of the Company's common stock, vesting
one third annually beginning July 1, 2003. The exercise price of the options is
$10 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.

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

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

         The Board of Directors has the authority to determine which employees
will receive a grant, the time or times when such grant will be made, whether an
incentive stock option or a nonstatutory option will be granted, and the number
of shares of common stock which may be issued under each option. The aggregate
number of shares of common stock that may be issued under the Employee Plan
(upon exercise of options) cannot generally exceed 100,000 shares. The Board of
Directors has approved the amendment of the 2000 Employee Stock Option Plan to
provide for options to acquire up to a maximum of 200,000 shares of the
Company's stock. The number of shares that are subject to options at any time
under the Employee Plan cannot exceed the number of shares that then remain
available for issuance under the Employee Plan. In the event that any
outstanding option for any reason expires or is canceled or otherwise
terminated, the shares allocable to the unexercised portion of such option shall
again be available for the purposes of the Employee Plan. Shares issued under
the Employee Plan that are reacquired by us pursuant to any forfeiture
provision, right of repurchase or right of first refusal, such shares will again
generally be available for the purposes of the Employee Plan.

                                       50
<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 31, 2005, 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                          130,196(1)                    4.2%
5072 Bristol Industrial Way
Buford, Georgia  30518

Marcus C. Byrd, Jr.                       140,892(2)                    4.5%
1661 Highway 9 South
Dawsonville, Georgia  30534

James M. Curry                             15,000(3)                    0.5%
312 Point Olympus Drive
Gainesville, Georgia  30506

Glennon C. Grogan                          80,126(4)                    2.6%
1980 Hughes Drive
Cumming, Georgia  30040
________________________


1   Includes 19,000 shares available upon exercise of his options but excludes
20,000 shares owned by Mr. Bowen's spouse, 3,000 shares owned each by Mr.
Bowen's two adult daughters, and 2,000 shares owned each by Mr. Bowen's three
adult sons and another daughter, for which he disclaims beneficial ownership.

2   Includes 19,000 shares available upon exercise of his options and 20,000
shares held in trust by Mr. Byrd in his individual retirement account and 7,092
shares held by an affiliate, Byrd Howard Properties. The figure excludes 2,000
shares owned by Mr. Byrd's spouse for which he disclaims beneficial ownership,
but includes 3,600 shares held as custodian for his daughter.

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

4   Includes 19,000 shares available upon exercise of his options.

                                       51
<PAGE>
Name and Address                    Amount and Nature of        Percent of Class
of Beneficial Owner                 Beneficial Ownership
--------------------------------------------------------------------------------

James H. Grogan                            87,206(5)                  2.8%
4210 Gravitt Road
Cumming, Georgia  30040

Andrew M. ("Jack") Head                   140,646(6)                  4.5%
2928 Ridgewood Road
Atlanta, Georgia  30327

J. Philip Hester, Sr.                      90,763(7)                  2.9%
32 Lakeshore Circle
Dawsonville, Georgia  30534

B. Todd Howard                            112,092(8)                  3.6%
3315 Dahlonega Highway
Cumming, Georgia  30040

David E. Johnson                          178,996(9)                  5.7%
260 Gold Leaf Terrace
Dawsonville, Georgia  30534

W. Alan McRae                             102,946(10)                 3.3%
499 Johnson Ferry Road
Atlanta, Georgia  30328

Deborah F. McLeod                           8,857                     0.3%
33 Sheep Wallow Road
Dahlonega, Georgia  30533
__________________

5   Includes 19,000 shares available upon exercise of his options and 3,000
shares owned jointly by Mr. Grogan and his spouse.

6   Includes 19,000 shares available upon exercise of his options, 20,000 shares
held in the John F. Head, Jr. Family Partnership, LLP and 200 shares owned by
his son but excludes 2,000 shares owned by Mr. Head's spouse and 200 shares
owned each by his two adult daughters, for which Mr. Head disclaims beneficial
ownership.

7   Includes 58,000 shares available upon exercise of his options as well as
29,870 shares held in an individual retirement account for his benefit and 2,063
shares held jointly with Mr. Hester's spouse.

8   Includes 19,000 shares available upon exercise of his options as well as
50,000 shares held jointly with his ex-spouse, 36,000 shares held as custodian
for the benefit of his minor children and 7,092 shares held by an affiliate,
Byrd Howard Properties.

9   Includes 19,000 shares available upon exercise of his options as well as
88,000 shares held in an individual retirement account.

10  Includes 19,000 shares available upon exercise of his options as well as
12,500 shares held in the McRae and Stolz Money Purchase Pension Plan.

                                       52
<PAGE>
Name and Address                    Amount and Nature of        Percent of Class
of Beneficial Owner                 Beneficial Ownership
--------------------------------------------------------------------------------

Kim M. Mills                               43,446(11)                 1.4%
57 Brights Way
Dawsonville, Georgia  30534

Russell M. Wallace                        156,196                     5.0%
77 Old River Road
Dahlonega, Georgia  30533

All executives officers and directors   1,283,862                    41.2%
as a group (13 persons)

To the knowledge of the Company, no other persons own more than 5% of the common
stock. Each of the persons listed in the above table has the right to acquire
beneficial ownership of shares of the Company as provided by footnote within
sixty days of December 31, 2004, such shares included in his beneficial
ownership pursuant to Rule 13d-3(d)(1) of the Securities Exchange Act of 1934
(the "1934 Act").


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.

_____________________

11   Includes 19,000 shares available upon exercise of his options, 1,050 shares
held jointly with a family member, and 1,000 shares owned by his minor daughter
but excludes 1,000 shares owned each by Mr. Mills' two adult daughters, for
which Mr. Mills disclaims beneficial ownership.

                                       53
<PAGE>
         As of December 31, 2004, we had outstanding loans to certain of our
directors, executive officers and relatives of such persons and their
associates, which aggregated approximately $18,995,000. This represented
approximately 82% of our $22,939,077 equity capital accounts. The Bank purchased
the building housing the administrative facilities adjacent to the Bank from CSB
Partners, LLP, an entity owned by all of our directors, for $1.5 million in
September 2003. We have not otherwise transacted within the previous two years,
nor do we expect to transact in the immediate future, any business with any
director, principal officer, or principal shareholder which exceeds 10% of our
equity capital accounts or $5 million, whichever is less.


ITEM 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


                                       54
<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  tate
               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  gency 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.

                                       55
<PAGE>
  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, 2004.


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, 2004 and
2003 and the reviews of our quarterly financial statements included with our
quarterly reports on Forms 10-QSB during this two year period are $50,500 and
$43,900, 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, 2004 and 2003 are $9,224 and $3,500,
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, 2004
and 2003 are $6,500 and $7,147, 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.

                                       56
<PAGE>
All Other Fees
--------------

         The aggregate fees billed for professional services rendered for all
other products and services for the years ended December 31, 2004 and 2003 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, 2004, the audit committee
approved approximately 100% of audit services. There were no financial systems
design and implementation services or non-audit services.




                                       57
<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 30, 2005


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

                               DATE: March 30, 2005




                                       58
<PAGE>
         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.


/s/ J. Philip Hester, Sr.
-------------------------                     ------------------
J. Philip Hester, Sr.                         Andrew M. Head
Chief Executive Officer, President and        Director
Director (principal executive officer)        March 30, 2005
March 30, 2005


                                              /s/ Bruce T. Howard
-------------------                           -------------------
Ralph Millard Bowen                           Bruce T. Howard
Director                                      Director
March 30, 2005                                March 30, 2005


/s/ Marcus C. Byrd, Jr.                       /s/ David E. Johnson
-----------------------                       --------------------
Marcus C. Byrd, Jr.                           David E. Johnson
Director                                      Chairman of the Board of Directors
March 30, 2005                                March 30, 2005


/s/ Glennon C. Grogan                         /s/ William A. McRae
---------------------                         ----------------
Glennon C. Grogan                             William A. McRae
Director                                      Director
March 30, 2005                                March 30, 2005


/s/ James H. Grogan                           /s/ Kim M. Mills
-------------------                           ----------------
James H. Grogan                               Kim M. Mills
Secretary and Director                        Director
March 30, 2005                                March 30, 2005


/s/ Deborah F. McLeod                         /s/ Russell M. Wallace
---------------------                         ----------------------
Deborah F. McLeod                             Russell M. Wallace
Chief Financial Officer                       Director
(principal accounting officer) and            March 30, 2005
Senior Vice President
March 30, 2005


                                       59