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, 2003 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 $ 13,253,039.

There were 3,106,000 outstanding shares of common stock, no par value per share,
as of December 31, 2003. The aggregate market value of the voting stock of the
Registrant held by non-affiliates of the Registrant, as of December 31, 2003,
was $21,278,120 based on the last sales price on such date.

<PAGE>
                                     PART I
                                     ------

ITEM 1.  DESCRIPTION OF BUSINESS
--------------------------------

History
-------

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

         The Company formed Chestatee Financial Services, Inc. on November 13,
2000, which began doing business in the first quarter of 2001. We also formed
Chestatee Residential Mortgage, Inc. on March 7, 2001, which began doing
business in the second quarter of 2001. Our assets consist primarily of our
ownership of the capital stock of the Bank, Chestatee Financial and Chestatee
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 $122 million, or 72%, of the Bank's
total loans at December 31, 2003. 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, 2003, the Bank held approximately $34
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, 2003, the Bank
held approximately $12 million in consumer loans, representing 8% 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 $10,000

                                       3
<PAGE>
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, 2003:

                                                           December 31, 2003

         Non-interest bearing demand.......................          9%
         Interest-bearing demand...........................         55%
         Savings...........................................          1%
         Time Deposits.....................................         19%
         Certificates of Deposit of $100,000 or more.......         16%

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

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

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

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

                                       4
<PAGE>
extending north from Atlanta between Interstate 75 and Interstate 85. The Bank
also serves the adjacent counties of Cherokee, Forsyth, Gilmer, Hall, Lumpkin
and Pickens.

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

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

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

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

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

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

         As of December 31, 2003, 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

                                       5
<PAGE>
County and Forsyth County as of December 31, 2003. 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, 2003, the Bank
had 58 full-time and 17 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, 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)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                                    TOTAL RISK-         TIER
      CLASSIFICATION                               BASED CAPITAL        BASED

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

(1)  An institution must meet all three minimums.

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

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

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

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

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

         At December 31, 2003, the Company is considered to be adequately
capitalized and the Bank is considered to be well-capitalized according to the
total risk-based regulatory capital requirement. We believe the Bank will remain
"well-capitalized" for the foreseeable future. However, rapid growth, poor loan
portfolio performance or poor earnings performance, or a combination of these
factors, could change our capital position in a short period of time, making an
additional capital infusion necessary.

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

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

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

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

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

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

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

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

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

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

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

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

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


ITEM 2. DESCRIPTION OF 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
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.

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

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

         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, 2003 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
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 2002 or 2003.

                                       16
<PAGE>
         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
-----------------      -----------------      ------------      -----------
2002
    First Quarter          225,000               $10.00            $10.00
    Second Quarter         350,000               $10.00            $10.00
    Third Quarter            N/A                  N/A                N/A
    Fourth Quarter         75,690                $10.00            $10.00

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

(1)   According to information available to us, there are no trades between
family members during the year ended December 31, 2003 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, 2003, the Company had 3,106,000 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.

                                       17
<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, 2003 and 2002 and the results of operations for the
years then ended. The purpose of this discussion is to focus on information
about our financial condition and results of operations that are not otherwise
apparent from our audited financial statements. Reference should be made to
those statements and the selected financial data presented elsewhere in this
report for an understanding of the following discussion and analysis.

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

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

                                       18
<PAGE>
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, 2003.

         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 2003 was highlighted by significant loan and deposit growth.
In 2003, we reported a net loss of $624,000 as compared to net income in 2002 of
$530,000. The decrease in earnings was due to an increase in provision for loan
losses of $2,657,000. Refer to the section Analysis for Loan Losses for expanded
discussion. Our primary market area of Dawson County, Georgia continues to grow.
During the second quarter of 2003, we opened a new branch facility in
neighboring Forsyth County, Georgia. We feel that establishing a presence in
this area will strategically position us to take advantage of the area's growth.

                                       19
<PAGE>
Financial Condition at December 31, 2003 and 2002
-------------------------------------------------

         The following is a summary of our balance sheets for the periods
indicated:
                                                               December 31,
                                                          2003             2002
                                                        ------------------------
                                                          (Dollars in Thousands)

Cash and due from banks                                 $  3,689        $  3,516
Interest-bearing deposits in banks                         1,894           1,329
Federal funds sold                                         5,938           5,946
Securities                                                35,845          15,612
Loans, net                                               165,314         140,285
Premises and equipment                                     8,325           6,065
Other assets                                               4,967           2,660
                                                        --------        --------

                                                        $225,972        $175,413
                                                        ========        ========

Total deposits                                          $183,538        $143,721
Other borrowings                                          20,700          10,250
Other liabilities                                            681           1,223
Stockholders' equity                                      21,053          20,219
                                                        --------        --------

                                                        $225,972        $175,413
                                                        ========        ========

As of December 31, 2003, we had total assets of $226 million, an increase of 28%
over December 31, 2002. Total interest-earning assets were $209 million at
December 31, 2003 or 93% of total assets as compared to 93% of total assets at
December 31, 2002. Our primary interest-earning assets at December 31, 2003 were
loans, which made up 79% of total interest-earning assets as compared to 86% at
December 31, 2002. Our ratio of loans to deposits and other borrowings was 81%
at December 31, 2003 as compared to 91% at December 31, 2002. Deposit growth of
$40 million and net proceeds from our 2003 stock offerings of $1.8 million were
used to fund loan growth of $25 million with the majority of the balance of the
$40 million being invested in available for sale securities.

         Our securities portfolio, consisting of U.S. Agencies, mortgage-backed
securities and restricted equity securities, amounted to $35.9 million at
December 31, 2003. Unrealized losses on securities available-for-sale were
$429,000 at December 31, 2003 as compared to unrealized gains of $97,000 at
December 31, 2002. Unrealized gains on securities held-to-maturity were $4,000
at December 31, 2002. At December 31, 2003, 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.

         We have 72% 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 (16%), construction loans to build one to

                                       20
<PAGE>
four-family residential properties (28%), and nonresidential properties
consisting primarily of small business commercial properties (56%). We generally
require that loans collateralized by real estate not exceed 80% of the
collateral value.

         The remaining 28% 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
     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 2003, 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.

                                       21
<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, 2003, we had loan commitments outstanding of $36
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, 2003, we had arrangements with two commercial
banks for additional short-term advances of $4,000,000.

         At December 31, 2003, our capital ratios were considered adequate based
on regulatory minimum capital requirements. Stockholders' equity increased in
2003 by $0.85 million due to net proceeds received from our stock offering of
$1.8 million, offset by a net loss of $624,000, and a decrease in other
comprehensive income related to our securities available-for-sale of $338,000.
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, 2003, 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, 2003 are as follows:

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

 Leverage capital ratio                 9.37%           9.20%            5.00%
 Risk-based capital ratios:
    Core capital                       11.30           11.08             6.00
    Total capital                      12.55           12.34            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.

                                       22
<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.

                                       23
<PAGE>
Results of Operations For The Years Ended December 31, 2003 and 2002
--------------------------------------------------------------------

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

                                                       Years Ended December 31,
                                                        2003              2002
                                                      --------------------------
                                                        (Dollars in Thousands)

Interest income                                       $ 11,830          $ 10,654

Interest expense                                         4,172             4,456
                                                      --------          --------

Net interest income                                      7,658             6,198

Provision for loan losses                                3,677             1,020

Other income                                             1,423               971

Other expenses                                           6,451             5,385
                                                      --------          --------

Pretax income (loss)                                    (1,047)              764

Income taxes (benefits)                                   (423)              234
                                                      --------          --------

Net income (loss)                                     $   (624)         $    530
                                                      ========          ========

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 3.96% in 2003 as
compared to 4.02% in 2002. Average loans increased by $25 million and average
investments increased $11 million which were the primary changes in average
interest-earning assets that increased overall by $39 million. Average
interest-bearing liabilities increased by $33 million as average interest
bearing demand deposits increased $31 million, average time deposits increased
$2 million and average other borrowings increased $1.5 million. The rate earned
on average interest-earning assets decreased to 6.11% in 2003 from 6.92% in
2002. The rate paid on average interest-bearing liabilities decreased to 2.54%
in 2003 as compared to 3.38% in 2002. The decrease in our net yield was due
primarily to the falling rate environment experienced in 2003. As our time
deposits continue to mature and reprice, we expect to see our net yield
increase.

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

          The provision for loan losses was $3,677,000 in 2003 as compared to
$1,020,000 in 2002. 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 this
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 have 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, 2003, partial charge-offs,
write-downs, and increase reserves of approximately $2.5 million were booked for
these borrowers.

          Management believes that, given this review and analysis, the
$3,163,000 in the allowance for loan losses at December 31, 2003, or 1.88% of
total net outstanding loans and the $2,126,000 in the allowance for loan losses
at December 31, 2002, or 1.49% of total net loans outstanding, are adequate at
their respective dates to absorb known risks in the portfolio based upon the
Bank's historical experience. No assurance can be given, however, that increased
loan volume, and adverse economic conditions or other circumstances will not
result in increased losses in our loan portfolio.

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

         Other operating income consists of service charges on deposit accounts
and other miscellaneous revenues and fees. Other operating income was $1,423,000
in 2003 as compared to $971,000 in 2002. The net increase is due primarily to an
increase in service charges on deposit accounts of $223,000 related to overall
deposit growth, an increase in gain on sale of loans of $126,000, and an
increase in gain on sale of securities of $54,000.

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

         Other expenses were $6,451,000 in 2003 as compared to $5,385,000 in
2002, an increase of $1,066,000. Salaries and employees benefits increased by
$445,000 due to annual salary increases and an increase in the number of full
time equivalent employees to 67 at December 31, 2003 from 60 at December 31,
2003. The increase in the number of employees is due to the addition of lending
staff for the new branch facility which opened in the spring of 2003. Equipment
and occupancy expenses increased by $281,000 due primarily to increased
depreciation costs of $199,000 and increased repairs and maintenance costs of
$104,000. Other operating expenses increased by $341,000 due primarily to
increased data processing costs of $20,000, deposit account charge-offs of
$145,000, and increased other operating costs of $176,000. The increases in
other operating expenses are largely attributable to the overall growth of the
Bank.

                                       25
<PAGE>
Income Tax
----------

         We have reported income tax benefit in 2003 of $423,000 as compared to
an income tax expense in 2002 of $234,000. In 2003, the rate of the tax benefit
as a percentage of our pretax loss was 40%. In 2002, the rate of the tax expense
as a percentage of our pretax income was 47%. This percentage is 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 our overall tax rate.

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

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

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

          A simple interest rate "gap" analysis by itself may not be an accurate
indicator of how net interest income will be affected by changes in interest
rates. Accordingly, we also evaluate how the repayment of particular assets and
liabilities is impacted by changes in interest rates. Income associated with
interest-earning assets and costs associated with interest-bearing liabilities
may not be affected uniformly by changes in interest rates. In addition, the
magnitude and duration of changes in interest rates may have a significant
impact on net interest income. For example, although certain assets and
liabilities may have similar maturities or periods of repricing, they may react
in different degrees to changes in market interest rates. Interest rates on
certain types of assets and liabilities fluctuate in advance of changes in
general market rates, while interest rates on other types may lag behind changes

                                       26
<PAGE>
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, 2003, our cumulative one year interest
rate-sensitivity gap ratio was 1.06%. 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,
2003, 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          $  1,894      $   --        $   --         $   --        $  1,894
     Federal funds sold            5,938          --            --             --           5,938
     Securities                     --             500         1,575         33,770        35,845
     Loans                       118,795        24,506        23,573          1,602       168,476
                                --------      --------      --------       --------      --------
                                $126,627        25,006        25,148         35,372       212,153
                                --------      --------      --------       --------      --------

Interest-bearing liabilities:
     Interest-bearing demand
     deposits                   $101,022          --            --             --         101,022
     Savings                       2,429          --            --             --           2,429
     Certificates of deposit      19,520        17,847        25,744              3        63,114
     Other borrowings              1,250          --          19,450           --          20,700
                                --------      --------      --------       --------      --------
                                $124,221        17,847        45,194              3       187,265
                                --------      --------      --------       --------      --------

Interest rate sensitivity
     gap                        $  2,406      $  7,159      $(20,046)      $ 35,369      $ 24,888
                                ========      ========      ========       ========      ========
Cumulative interest rate
     sensitivity gap            $  2,406      $  9,565      $(10,481)      $ 24,888
                                ========      ========      ========       ========
Interest rate sensitivity
     gap ratio                      1.02          1.40          0.56           --
                                ========      ========      ========       ========
 Cumulative interest rate
     sensitivity gap ratio          1.02          1.06          0.94          1.13
                                ========      ========      ========       ========
 </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,
                                              2003                 2002
                                          ------------------------------
                                               (Dollars in Thousands)

ASSETS
     Cash and due from banks              $   4,002            $   3,457
     Interest-bearing deposits in banks       1,667                1,725
     Taxable Securities                      22,344               11,312
     Tax-free Securities                        552                 --
     Securities valuation account              (100)                  56
     Federal funds sold                      11,377                8,665
     Loans (2)                              157,741              132,319
     Allowance for loan losses               (3,324)              (1,485)
     Other assets                             9,776                7,722
                                          ---------            ---------
                                          $ 204,035            $ 163,771
                                          =========            =========

     Total interest-earning assets        $ 193,581            $ 154,077
                                          =========            =========

LIABILITIES AND STOCKHOLDERS' EQUITY
     Deposits:
     Noninterest-bearing demand           $  17,275            $  12,918
     Interest-bearing demand                 78,905               49,665
     Savings                                  2,323                2,099
     Time                                    69,483               67,895
                                          ---------            ---------
     Total deposits                         167,986              132,577

     Other borrowings                        13,848               12,319
     Other liabilities                          506                  730
                                          ---------            ---------
     Total liabilities                      182,340              145,626
     Stockholders' equity                    21,695               18,145
                                          ---------            ---------
                                          $ 204,035            $ 163,771
                                          =========            =========

     Total interest-bearing liabilities   $ 164,559            $ 131,978
                                          =========            =========

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

(2)  Nonaccrual loans included in average balances for 2003 and 2002 were
     $622,000 and $607,000, 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,
                                                              2003                           2002
                                                                      Average                        Average
                                                     Interest          Rate        Interest          Rate
                                                                        (Dollars in Thousands)
<S>                             <C>                  <C>                <C>        <C>                <C>
INTEREST INCOME:
     Interest and fees on loans (1)                  $ 10,965           6.95%      $ 10,045           7.59%
     Interest on deposits in banks                         29           1.74              47          2.72
     Interest on taxable securities                       695           3.12             417          3.67
     Interest on tax-free securities                       15           2.72               -             -
     Interest on federal funds sold                       126           1.11             146          1.68
                                                     --------                       --------
     Total interest income                           $ 11,830           6.11        $ 10,655          6.92
                                                     --------                       --------

INTEREST EXPENSE:
     Interest on interest-bearing
       demand deposits                               $  1,446           1.83%       $  1,174          2.36%
     Interest on savings deposits                           9           0.39              31          1.48
     Interest on time deposits                          2,426           3.49           2,952          4.35
     Interest on other borrowings                         291           2.10             299          2.43
                                                     --------                       --------
     Total interest expense                          $  4,172           2.54        $  4,456          3.38
                                                     --------                       --------

NET INTEREST INCOME                                  $  7,658                       $  6,199

     Net interest spread                                                3.58%                         3.54%
                                                                        ====                          ====
     Net yield on average interest-earning assets                       3.96%                         4.02%
                                                                        ====                          ====
</TABLE>

(1)  Interest and fees on loans includes $999,000 and $947,000 of loan fee
     income for the years ended December 31, 2003 and 2002, respectively. There
     was no interest income recognized on nonaccrual loans during 2003 or 2002.

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,
                                                          2003 vs. 2002
                                                         Changes Due To:

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

Increase (decrease) in:
     Income from interest-earning assets:
     Interest and fees on loans                   $  (897)   $ 1,817    $   920
     Interest on deposits in banks                    (16)        (2)       (18)
     Interest on taxable securities                   (70)       348        278
     Interest on tax-free securities                   --         15         15
     Interest on federal funds sold                   (58)        38        (20)
                                                  -------    -------    -------
     Total interest income                        $(1,041)     2,216      1,175
                                                  -------    -------    -------

     Expense from interest-bearing liabilities:
     Interest on interest-bearing
     demand deposits                              $  (307)   $   579    $   272
     Interest on savings deposits                     (25)         3        (22)
     Interest on time deposits                       (594)        68       (526)
     Interest on other borrowings                     (43)        35         (8)
                                                  -------    -------    -------
     Total interest expense                       $  (969)   $   685    $  (284)
                                                  -------    -------    -------

     Net interest income                          $   (72)   $ 1,531    $ 1,459
                                                  =======    =======    =======


                              INVESTMENT PORTFOLIO

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

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

                                          Years Ended December 31,
                                          2003               2002
                                        --------------------------
                                          (Dollars in Thousands)


U.S. Government agencies                $ 9,544            $14,968
Mortgage-backed securities               24,162               --
Municipals                                1,104               --
Restricted equity securities              1,035                643
                                        -------            -------
                                        $35,845            $15,611
                                        =======            =======

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

         The amounts of debt securities as of December 31, 2003 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 of $1,035,000 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      $    509       3.68%      $   976       3.06%    $ 8,059       3.83%
Mortgage-backed securities           -          -            -                       -          -
Municipals                           -          -           576       2.01           -          -
                              -------------------------------------------------------------------
  Total debt securities       $    509       3.68%      $ 1,552       2.67%    $ 8,059       3.83%
                              ========                  =======                =======
</TABLE>

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

<S>                           <C>            <C>                               <C>            <C>
U.S. Government agencies      $     -           -                              $  9,544       3.75%
Mortgage-backed securities      24,163       3.32                                24,163       3.32
Municipals                         528       5.41                                 1,104       3.68
                              --------       -----                             --------       -----
  Total debt securities       $ 24,691       3.36%                             $ 34,811       3.45%
                              ========       =====                             ========       =====

</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,
                                               2003                  2002
                                            -------------------------------
                                                  (Dollars in Thousands)

Commercial                                  $  33,997             $  30,514
Real estate-construction                       34,596                27,368
Real estate-mortgage                           87,780                70,313
Consumer installment and other                 12,104                14,216
                                            ---------             ---------
                                              168,477               142,411
Less allowance for loan losses                 (3,163)               (2,126)
                                            ---------             ---------
Net loans                                   $ 165,314             $ 140,285
                                            =========             =========


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

         Total loans as of December 31, 2003 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                             $  20,886
    After one through five years                    11,700
    After five years                                 1,411
                                                 ---------
                                                 $  33,997
                                                 ---------

Construction
    One year or less                             $  28,814
    After one through five years                     5,782
    After five years                                     -
                                                 ---------
                                                 $  34,596
                                                 ---------

Other
    One year or less                             $  47,946
    After one through five years                    41,207
    After five years                                10,731
                                                 ---------
                                                 $  99,884
                                                 ---------

Total                                            $ 168,477
                                                 =========

                                       33
<PAGE>
         The following table summarizes loans at December 31, 2003 with the due
dates after one year that have predetermined and floating or adjustable interest
rates.

                                                    (Dollars in Thousands)

Predetermined interest rates                              $  29,359
Floating or adjustable interest rates                        41,472
                                                          ---------
                                                          $  70,831
                                                          =========

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

         Information with respect to nonaccrual, past due, restructured and
other problem loans at December 31, 2003 and 2002 is as follows:

                                                              December 31,
                                                         2003            2002
                                                       ---------------------
                                                       (Dollars in Thousands)

Nonaccrual loans                                       $ 1,137        $   323
Loans contractually past due ninety
     days or more as to interest or
     principal payments and still accruing                  71            995
Restructured loans                                           0              0
Potential problem loans                                  2,727          1,913
Interest income that would have been recorded
     on nonaccrual and restructured loans under
     original terms                                        147             18
Interest income that was recorded on
     nonaccrual and restructured loans                       0              0

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

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

                                       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,
                                                2003        2002
                                              --------------------
                                             (Dollars in Thousands)

Average amount of loans outstanding           $157,741    $132,319
                                              ========    ========

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

Loans charged off
         Commercial and financial                1,828        --
         Real estate- mortgage                      77         120
         Installment                               754          35
                                              --------     -------
                                                 2,659         155
                                              --------     -------

Loans recovered
         Commercial and financial                 --             6
         Real estate mortgage                     --          --
         Installment                                19           3
                                              --------     -------
                                                    19           9
                                              --------     -------

Net charge-offs                                  2,640         146
                                              --------     -------

Additions to allowance charged to operating
         expense during year                     3,677       1,020

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

Ratio of net loans charged off during the
         year to average loans outstanding        1.67%        .11%
                                                  ====         ===

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, 2003 and 2002, 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, 2003               December 31, 2002
                                        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                     $   664          20%           $   468             22%
Real estate - construction         633          21                319             19
Real estate - mortgage           1,645          52              1,063             49
Consumer installment
     loans and other               221           7                276             10
                               -------         ---            -------            ---
                               $ 3,163         100%           $ 2,126            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,
                                                          2003                                   2002
                                                Amount           Percent                Amount          Percent
                                              -----------------------------------------------------------------
                                                                     (Dollars in Thousands)
<S>                                           <C>                                     <C>
Noninterest-bearing demand deposits           $  17,275               -%              $  12,918              -%
Interest-bearing demand deposits                 78,905            1.83                  49,665           2.36
Savings deposits                                  2,323            0.39                   2,099           1.48
Time deposits                                    69,483            3.49                  67,895           4.35
                                              ---------                               ---------
                                              $ 167,986                               $  93,074
                                              =========                               =========
</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, 2003 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                                      $  6,694
Over three months through six months                         3,220
Over six through twelve months                               2,975
Over twelve months                                          14,501
                                                          --------
         Total                                            $ 27,390
                                                          ========


                   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)                           (.31)%        .33%
Return on equity (2)                          (2.88)        3.05
Dividend payout ratio (3)                         -            -
Equity to assets ratio (4)                    10.63        10.67

(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, 2003




                                       38
<PAGE>
                           CHESTATEE BANCSHARES, INC.
                                AND SUBSIDIARIES

                          CONSOLIDATED FINANCIAL REPORT
                                DECEMBER 31, 2003




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


                                                                            Page
                                                                            ----

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

FINANCIAL STATEMENTS

     Consolidated balance sheets.............................................F-2
     Consolidated statements of operations...................................F-3
     Consolidated statements of comprehensive income (loss)..................F-4
     Consolidated statements of stockholders' equity.........................F-5
     Consolidated statements of cash flows...................................F-6
     Notes to consolidated financial statements...................F-7 through 26



<PAGE>
                          INDEPENDENT AUDITOR'S REPORT


         We have audited the accompanying consolidated balance sheets of
Chestatee Bancshares, Inc. and subsidiaries as of December 31, 2003 and 2002,
and the related consolidated statements of operations, comprehensive income
(loss), stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Chestatee
Bancshares, Inc. and subsidiaries as of December 31, 2003 and 2002, and the
results of their operations and their cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.



                                             /s/ MAULDIN & JENKINS, LLC




Atlanta, Georgia
February 13, 2004

                                      F-1

<PAGE>
                           Chestatee Bancshares, Inc.
                                and Subsidiaries

                           Consolidated Balance Sheets
                     Years Ended December 31, 2003 and 2002

<TABLE>
<CAPTION>
                            Assets                                   2003            2002
                            ------
<S>                                                            <C>             <C>
Cash and due from banks                                        $   3,688,806   $   3,516,119
Interest-bearing deposits in banks                                 1,893,603       1,328,541
Federal funds sold                                                 5,938,000       5,946,000
Securities available-for-sale, at fair value                      34,810,306      14,568,644
Securities held-to-maturity, fair value of $404,000 for 2002               -         399,940
Restricted equity securities                                       1,035,000         642,500
                                                                                           0
Loans                                                            168,476,894     142,411,278
Less allowance for loan losses                                     3,162,548       2,126,188
                                                               -------------   -------------
          Loans, net                                             165,314,346     140,285,090
                                                               -------------   -------------

Premises and equipment                                             8,324,749       6,065,481
Other assets                                                       4,967,289       2,660,392
                                                               -------------   -------------

          Total assets                                         $ 225,972,099   $ 175,412,707
                                                               =============   =============

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

Deposits
    Noninterest-bearing                                        $  16,972,313   $  13,275,075
    Interest-bearing                                             166,565,903     130,445,806
                                                               -------------   -------------
          Total deposits                                         183,538,216     143,720,881
Other borrowings                                                  20,700,000      10,250,000
Other liabilities                                                    681,374       1,222,589
                                                               -------------   -------------
          Total liabilities                                      204,919,590     155,193,470
                                                               -------------   -------------

Commitments and contingencies

Stockholders' equity
    Common stock, no par value; 20,000,000 shares
      authorized: 3,106,000 shares issued and outstanding         21,414,341      19,618,713
       prior year: 2,925,690 shares issued and outstanding
    Retained earnings (deficit)                                      (83,346)        540,344
    Accumulated other comprehensive income (loss)                   (278,486)         60,180
                                                               -------------   -------------
          Total stockholders' equity                              21,052,509      20,219,237
                                                               -------------   -------------
          Total liabilities and stockholders' equity           $ 225,972,099   $ 175,412,707
                                                               =============   =============
</TABLE>

                 See Notes to Consolidated Financial Statements

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

                      Consolidated Statements of Operations
                     Years Ended December 31, 2003 and 2002

<TABLE>
<CAPTION>
                                                       -------------    ------------
                                                            2003            2002
                                                       -------------    ------------
<S>                                                     <C>             <C>
Interest income
    Loans                                               $ 10,965,489    $ 10,044,750
    Taxable securities                                       695,376         416,589
    Nontaxable securities                                     14,502            --
    Federal funds sold                                       125,619         145,840
    Interest-bearing deposits in banks                        29,133          47,045
                                                        ------------    ------------
              Total interest income                       11,830,119      10,654,224
                                                        ------------    ------------
Interest expense
    Deposits                                               3,881,278       4,156,745
    Other borrowings                                         290,856         299,033
                                                        ------------    ------------
              Total interest expense                       4,172,134       4,455,778
                                                        ------------    ------------

              Net interest income                          7,657,985       6,198,446
Provision for loan losses                                  3,676,614       1,019,658
                                                        ------------    ------------
              Net interest income after
                provision for loan losses                  3,981,371       5,178,788
                                                        ------------    ------------
Other income
      Service charges and fees                               852,391         628,893
      Gains on sales of securities available-for-sale         53,637            --
      Other operating income                                 516,892         341,909
                                                        ------------    ------------
              Total other income                           1,422,920         970,802
                                                        ------------    ------------
Other expenses
    Salaries and employee benefits                         3,197,285       2,752,548
    Occupancy and equipment expenses                       1,046,668         765,940
    Other operating expenses                               2,207,406       1,866,692

                                                        ------------    ------------
              Total other expenses                         6,451,359       5,385,180
                                                        ------------    ------------

              Net income (loss) before income tax
                  expense (benefit)                       (1,047,068)        764,410

Income tax expense  (benefit)                               (423,378)        234,286
                                                        ------------    ------------

              Net income (loss)                             (623,690)        530,124
                                                        ============    ============


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

Diluted earnings (losses) per share                     $      (0.20)   $       0.19
                                                        ============    ============
</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, 2003 and 2002

<TABLE>
<CAPTION>
                                                                       2003        2002
                                                                    ----------   ---------
<S>                                                                 <C>          <C>
Net income (loss)                                                   $(623,690)   $ 530,124

Other comprehensive income:
        Unrealized holding gains (losses) on securities
           available-for-sale arising during period, net of
           tax (benefits) of $(166,654) and $34,606, respectively    (305,411)      56,789

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

Other comprehensive income (loss)                                    (338,666)      56,789
                                                                    ---------    ---------

Comprehensive income (loss)                                         $(962,356)   $ 586,913
                                                                    =========    =========
</TABLE>

                 See Notes to Consolidated Financial Statements

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

                 Consolidated Statements of Stockholders' Equity
                     Years Ended December 31, 2003 and 2002

<TABLE>
<CAPTION>
                                                                                Accumulated
                                           Common Stock            Retained        Other           Total
                                  ---------------------------
                                                    Amount         Earnings     Comprehensive   Stockholders'
                                    Shares          Paid In       (Deficit)     Income (Loss)      Equity
                                  -----------   -------------   ------------    ------------    ------------
<S>                               <C>           <C>            <C>              <C>            <C>
Balance, December 31, 2001          2,275,000     13,169,370          10,220           3,391      13,182,981
    Net income                           --             --           530,124            --           530,124
    Issuance of common stock          650,690      6,506,900            --         6,506,900
    Stock issue costs                    --          (57,557)           --              --           (57,557)
    Other comprehensive income           --             --              --            56,789          56,789
                                 ------------   ------------    ------------    ------------    ------------
Balance, December 31, 2002          2,925,690   $ 19,618,713    $    540,344    $     60,180    $ 20,219,237
    Net income                           --             --          (623,690)           --          (623,690)
    Issuance of common stock          180,310      1,795,628            --         1,795,628
    Stock issue costs                    --             --              --
    Other comprehensive income           --             --              --          (338,666)       (338,666)
                                 ------------   ------------    ------------    ------------    ------------
Balance, December 31, 2003          3,106,000   $ 21,414,341    $    (83,346)   $   (278,486)   $ 21,052,509
                                 ============   ============    ============    ============    ============
</TABLE>

                 See Notes to Consolidated Financial Statements

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

                      Consolidated Statements of Cash Flows
                     Years Ended December 31, 2003 and 2002

<TABLE>
<CAPTION>
                                                                        2003           2002
                                                                   -------------   ------------
<S>                                                                <C>             <C>
OPERATING ACTIVITIES
    Net income  (loss)                                             $   (623,690)   $    530,124
    Adjustments to reconcile net income (loss) to net cash
        provided by operating activities:
        Depreciation                                                    552,267         353,126
        Deferred Income taxes                                          (118,016)       (248,703)
        Provision for loan losses                                     3,676,614       1,019,658
        Provision for losses on other real estate owned                  41,015            --
        Amortization and accretion                                      154,013            --
        Gain on sale of securities available-for-sale                   (53,637)           --
        Increase in interest receivable                                 (45,369)       (297,758)
        Increase (decrease) in interest payable                        (105,667)         64,102

        Net other operating activities                               (2,347,038)        742,026
                                                                   ------------    ------------

              Net cash provided by operating activities               1,130,492       2,162,575
                                                                   ------------    ------------

INVESTING ACTIVITIES
    Net increase in interest-bearing deposits in banks                 (565,062)        (28,611)

    Net decrease in federal funds sold                                    8,000       9,372,000
    Purchases of securities available-for-sale                      (40,717,307)    (16,472,093)
    Proceeds from maturities of securities available-for-sale        15,136,253       2,500,000
    Proceeds from sales of securities available-for-sale              4,713,214            --
    Proceeds from maturities of securities held-to-maturity             399,940            --
    Purchase of restricted equity securities                           (392,500)           --
    Net increase in loans                                           (28,791,771)    (30,056,089)
    Purchase of premises and equipment                               (2,811,535)     (1,359,644)
                                                                   ------------    ------------

              Net cash used in investing activities                 (53,020,768)    (36,044,437)
                                                                   ------------    ------------

FINANCING ACTIVITIES
    Net increase in deposits                                         39,817,335      30,099,210
    Net proceeds from other borrowings                               10,450,000      (2,600,000)
    Proceeds from sale of common stock                                1,743,100       6,419,319
    Net increase due to exercise of options                              52,528            --
                                                                   ------------    ------------

              Net cash provided by financing activities              52,062,963      33,918,529
                                                                   ------------    ------------

Net increase in cash and due from banks                                 172,687          36,667

Cash and due from banks, beginning of period                          3,516,119       3,479,452
                                                                   ------------    ------------

Cash and due from banks, end of period                             $  3,688,806    $  3,516,119
                                                                   ============    ============

SUPPLEMENTAL DISCLOSURES
    Cash paid for:
          Interest                                                 $  4,277,801    $  4,391,676
          Income taxes                                             $  1,358,681    $    (82,576)
    Principal balances of loans transferred to other real estate   $     85,901    $  1,074,816
    Financed sales of other real estate owned                      $    134,930    $    830,154

     Accrued stock issue costs                                     $          0    $     32,970
</TABLE>

                 See Notes to Consolidated Financial Statements

                                      F-7
<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 $692,000 at December
         31, 2003.

         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
         held-to-maturity and available for sale securities below their cost
         that are deemed to be other than temporary are reflected in earnings as
         realized losses.

         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. The carrying amount
         of other real estate owned was $136,303 and $226,348 at December 31,
         2003 and 2002, respectively.

         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, 2003, 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, 2003
         and 2002. 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)

                                                        Years Ended December 31,
                                                        ------------------------
                                                            2003         2002
                                                        ----------    ----------

Net income (loss), as reported                          $ (623,690)   $ 530,124
Deduct: Total stock-based employee compensation
   expense determined under fair value based
   method for all awards, net of related tax effects       (74,801)     (63,557)
                                                        -----------   ----------
Pro forma net income (loss)                             $ (698,491)   $ 466,567
                                                        ===========   ==========
Earnings (losses) per share:
     Basic - as reported                                $     (.20)   $     .20
                                                        ===========   ==========
     Basic - pro forma                                  $     (.23)   $     .17
                                                        ===========   ==========
     Diluted - as reported                              $     (.20)   $     .19
                                                        ===========   ==========
     Diluted - pro forma                                $     (.22)   $     .17
                                                        ===========   ==========

         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 2002, the FASB issued Statement No. 148, "Accounting for
         Stock-Based Compensation - Transition and Disclosure, an amendment of
         FASB Statement No. 123". The Statement amends Statement No. 123,
         "Accounting for Stock-Based Compensation", to provide alternative
         methods of transition for a voluntary change to the fair value method
         of accounting for stock-based employee compensation. In addition, the
         statement amends the disclosure requirements of Statement No. 123 to
         require prominent disclosures in both annual and interim financial
         statements about the method of accounting for stock-based compensation
         and the effect on reported results of operations. The disclosure
         requirements of the statement are required for fiscal years ending
         after December 15, 2002 and interim periods beginning after December
         15, 2002. The Company has not adopted Statement No. 123 for accounting
         for stock-based compensation as of December 31, 2003; however all
         required disclosures of Statement No. 148 are included above under the
         heading "Stock-Based Compensation".

                                      F-10
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         Recent Accounting Standards (Continued)

         In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
         Accounting and Disclosure Requirements for Guarantees, Including
         Indirect Guarantees of Indebtedness of Others, an interpretation of
         FASB Statements No. 5, 57, and 107 and a rescission of FASB
         Interpretation No. 34". The interpretation elaborates on the
         disclosures to be made by a guarantor in its interim and annual
         financial statements about its obligations under guarantees issued. It
         also clarifies that a guarantor is required to recognize, at inception
         of a guarantee, a liability for the fair value of the obligation
         undertaken in issuing a guarantee. The initial recognition and initial
         measurement provisions of the interpretation are applicable to
         guarantees issued or modified after December 31, 2002. The disclosure
         requirements in the interpretation are effective for financial
         statements of interim or annual periods ending after December 15, 2002.
         The adoption of the interpretation did not have a material effect on
         the Company's financial condition or results of operations.

         In January 2003, the FASB issued Interpretation No. 46, "Consolidation
         of Variable Interest Entities, an interpretation of ARB No. 51", and on
         December 24, 2003, the FASB issued FASB Interpretation No. 46 (Revised
         December 2003), "Consolidation of Variable Interest Entities" which
         replaced FIN 46. The interpretation addresses consolidation by business
         enterprises of variable interest entities. A variable interest entity
         is defined as an entity subject to consolidation according to the
         provisions of the interpretation. The revised interpretation provided
         for special effective dates for entities that had fully or partially
         applied the original interpretation as of December 24, 2003. Otherwise,
         application of the interpretation is required in financial statements
         of public entities that have interests in special-purpose entities, or
         SPEs, for periods ending after December 15, 2003. Application by public
         entities, other than small business issuers, for all other types of
         variable interest entities (i.e., non-SPEs) is required in financial
         statements for periods ending after March 15, 2004. Application by
         small business issuers to variable interest entities other than SPEs
         and by nonpublic entities to all types of variable interest entities is
         required at various dates in 2004 and 2005. The interpretations have
         not had a material effect on the Company's financial condition or
         results of operations.

                                      F-11
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2.  SECURITIES

         The amortized cost and fair value of securities are summarized as
follows:

<TABLE>
<CAPTION>
                                                                Gross           Gross
                                    Amortized   Unrealized    Unrealized        Fair
                                       Cost       Gains        Losses          Value
                                  ------------   ---------   -----------   -------------
<S>                               <C>            <C>         <C>           <C>
Securities Available-for-Sale
 December 31, 2003:
 U.S. Government and
    agency securities             $  9,654,284   $ 12,082    $ (122,449)   $   9,543,917
 State, county and municipal
    Securities                       1,140,818          -       (37,099)       1,103,719
 Mortgage-backed securities         24,444,142      8,961      (290,433)      24,162,670
                                  ------------   --------    -----------   -------------
                                    35,239,244     21,043      (449,981)      34,810,306
                                  ============   ========    ===========   =============

  December 31, 2002:
  U.S. Government and
     agency securities            $ 14,471,780   $ 97,401    $     (537)   $  14,568,644
                                  ============   ========    ===========   =============

Securities Held-to-Maturity
 December 31, 2003:
 U.S. Government and
    agency securities             $         -    $      -    $        -    $           -
                                  ============   ========    ===========   ==============

 December 31, 2002:
 U.S. Government and
    agency securities             $    399,940   $  4,060    $        -    $     404,000
                                  ============   ========    ===========   =============
</TABLE>

    Securities with a carrying value of $26,102,539 and $760,440 at
    December 31, 2003 and 2002 were pledged to secure public deposits and
    for other purposes required or permitted by law. At December 31, 2003,
    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,
    2003 by contractual maturity are shown below.

<TABLE>
<CAPTION>
                                    Securities
                                Available-for-Sale
                             ------------------------
                               Amortized      Fair
                                Cost          Value
                             -----------   -----------
<S>                          <C>           <C>
Due in less than one year    $   499,801   $   509,375
Due from one to five years     1,574,545     1,552,139

Due from five to ten years     8,160,756     8,058,604
Due after ten years              560,000       527,518
                             -----------   -----------
                             $10,795,101   $10,647,636
Mortgage-backed securities   $24,444,142   $24,162,670
                             -----------   -----------
                             $35,239,244   $34,810,306
                             ===========   ===========
</TABLE>

                                      F-12
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3.  LOANS

         The composition of loans is summarized as follows:

<TABLE>
<CAPTION>
                                                                           December 31,
                                                              -------------------------------------
                                                                     2003               2002
                                                              -----------------    ----------------
<S>                                                           <C>                  <C>
Commercial and industrial                                     $     33,997,000     $    30,514,000
Real estate - construction                                          34,596,000          27,368,000
Real estate - mortgage                                              87,780,000          70,355,000
Consumer and other                                                  12,202,000          14,216,000
                                                              -----------------    ----------------
                                                                   168,575,000         142,453,000
Unearned income                                                       (98,106)            (41,722)
Allowance for loan losses                                          (3,162,548)         (2,126,188)
                                                              -----------------    ----------------
Loans, net                                                    $    165,314,346     $   140,285,090
                                                              =================    ================
</TABLE>

  Changes in the allowance for loan losses are as follows:

<TABLE>
<CAPTION>
                                                                    Years Ended December 31,
                                                              -------------------------------------
                                                                    2003                2002
                                                              -----------------    ----------------
<S>                                                           <C>                  <C>
Balance, beginning of year                                    $      2,126,188     $     1,252,461
   Provision for loan losses                                         3,676,614           1,019,658
   Loans charged off                                               (2,659,426)           (155,273)
   Recoveries of loans previously charged off                           19,172               9,342
                                                              -----------------    ----------------
Balance, end of year                                          $      3,162,548     $     2,126,188
                                                              =================    ================
</TABLE>

         The total recorded investment in impaired loans was $1,136,648 and
         $323,388 at December 31, 2003 and 2002, 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, 2003 and 2002. The average recorded
         investment in impaired loans for 2003 and 2002 was $1,931,764 and
         $532,055, respectively. Interest income recognized for cash payments
         received on impaired loans was not material for the years ended
         December 31, 2003 and 2002.

         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, 2003 are as follows:

Balance, beginning                                       $  15,906,442
   Advances                                                 17,179,080
   Repayments                                              (15,322,823)
                                                         -------------
Balance, ending                                          $  17,762,699
                                                         =============

                                      F-13
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4.  PREMISES AND EQUIPMENT

         Premises and equipment are summarized as follows:

<TABLE>
<CAPTION>
                                                                  December 31,
                                                         --------------------------------
                                                             2003              2002
                                                         --------------    --------------
<S>                                                      <C>                <C>
Land                                                     $     1,405,872    $   1,405,873
Buildings                                                      5,514,445        3,459,370
Equipment                                                      2,853,365        1,950,693
Construction and equipment installation in progress                    -          206,780
                                                         ----------------   --------------
                                                               9,773,682        7,022,716
Accumulated depreciation                                     (1,448,933)        (957,235)
                                                         ----------------   --------------
                                                         $     8,324,749    $   6,065,481
                                                         ================   ==============
</TABLE>

         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, 2003, the Company was not under any lease
         agreements.

         Total rental expense is summarized as follows:

<TABLE>
<CAPTION>
                                                            Years Ended December 31,
                                                         --------------------------------
                                                             2003              2002
                                                         --------------    --------------
<S>                                                      <C>               <C>
Related party                                            $      30,375     $      49,236
Other third parties                                             7, 500            18,250
                                                         --------------    --------------
                                                         $      37,875     $      67,486
                                                         ==============    ==============
</TABLE>

NOTE 5.  DEPOSITS

         The aggregate amount of time deposits in denominations of $100,000 or
         more at December 31, 2003 and 2002 was $29,515,000 and $32,071,000,
         respectively. The Company had brokered certificates of deposit at
         December 31, 2003 and 2002 of $5,000,000 and $3,594,000, respectively.
         The scheduled maturities of time deposits at December 31, 2003 are as
      follows:

2004                                                     $  37,611,873
2005                                                        19,483,120
2006                                                         1,801,934
2007                                                         3,107,015
2008                                                         1,107,591
Thereafter                                                       3,339
                                                         --------------
                                                         $  63,114,872
                                                         ==============

         At December 31, 2003 and 2002, overdraft demand deposits reclassified
         to loans totaled $49,676 and $67,789, respectively.

                                      F-14
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6.  OTHER BORROWINGS

         Other borrowings consist of the following:

<TABLE>
<CAPTION>
                                                                                      December 31,
                                                                           --------------------------------
                                                                               2003              2002
                                                                           --------------    --------------
<S>                                                                        <C>               <C>
Adjustable rate advance from Federal Home Loan Bank with
   interest payable quarterly (interest rate adjusts quarterly, 1.20%
      at December 31, 2003), matures June 20, 2005.                        $   1,250,000     $   8,250,000
   Fixed rate advance from Federal Home Loan Bank with interest
      payable monthly at 2.17%, matures January 18, 2005.                      4,600,000                 -
   Fixed rate advance from Federal Home Loan Bank with interest
      payable monthly at 1.99%, matures June 20, 2006.                         1,250,000                 -
   Fixed rate advance from Federal Home Loan Bank with interest
       payable monthly at 2.84%, matures June 20, 2008.                        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                 -
   Fixed rate advance from Federal Home Loan Bank with interest
      payable monthly at 2.50%, matures June 20, 2007                          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                 -
   Fixed rate advance from Federal Home Loan Bank with interest
      payable monthly at 2.38%, matures December 12,2005.                      5,100,000                 -
   Fixed rate advance from Federal Home Loan Bank with interest
      payable monthly at 2.99%, matures April 3, 2003.                                 -         1,000,000
   Fixed rate advance from Federal Home Loan Bank with interest
      payable monthly at 3.30%, matures October 3, 2003.                               -         1,000,000
                                                                           --------------    --------------
                                                                           $  20,700,000     $  10,250,000
                                                                           ==============    ==============
</TABLE>

         The advances from the Federal Home Loan Bank are secured by a certain
         qualifying loans of approximately $10 million, approximately $17
         million in mortgage-backed securities, and Federal Home Loan Bank stock
         of $1 million.

         Contractual maturities of other borrowings as of December 31, 2003 are
         as follows:

      2005                                                    $  10,950,000
      2006                                                        7,250,000
      2007                                                        1,250,000
      2008                                                        1,250,000
      Thereafter                                                        -
                                                              --------------
                                                              $  20,700,000
                                                              ==============

                                      F-15
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 2003 and 2002 is $1,065,985 and $628,910,
         respectively. Income recognized on the policies amounted to $36,150 and
         $30,549. The balance of deferred compensation included in other
         liabilities at December 31, 2003 and 2002 is $95,914 and $16,200,
         respectively. Expense recognized for deferred compensation was $79,714
         and $12,960 for the years ended December 31, 2003 and 2002,
         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 $45,237 and $29,360 for the years ended
         December 31, 2003 and 2002, respectively.

NOTE 8.  Stock BASED Compensation

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

         The Company also has outstanding options related to previous employee
         agreements with certain of its executive officers whereby stock options
         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.

         Other pertinent information related to the options follows:

<TABLE>
<CAPTION>
                                                       2003                         2002
                                            ---------------------------- ---------------------------
                                                           Weighted-                    Weighted-
                                                            Average                      Average
                                                            Exercise                     Exercise
                                              Shares         Price         Shares         Price
                                            ------------ --------------- ------------  -------------
<S>                                             <C>            <C>          <C>            <C>
  Under option, beginning of year               270,000        8.06         244,000        7.85
     Granted                                     11,000       10.00          26,000       10.00
     Exercised                                  (6,000)        5.26
     Cancelled
                                            ------------                ------------
  Under option, end of year                     275,000        8.20         270,000        8.06
                                            ============                ============

  Exercisable, end of year                      260,001        8.09         231,000        7.85
                                            ============                ============
  Weighted-average fair value of options
     granted during the year                $      3.43                 $      3.34
</TABLE>

                                      F-16

<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8.  Stock BASED Compensation (Continued)

         Information pertaining to options outstanding at December 31, 2003 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       6.50 years    $  4.89           16,000        $  4.89
  $8.00 - $10.00                259,000       8.19 years       8.40          244,001           8.30
                          --------------                                   ----------
                                275,000       7.69 years       8.20          260,001           8.09
                          ==============                                   ==========
</TABLE>

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

<TABLE>
<CAPTION>
                                                                Years Ended December 31,
                                                               -------------------------
                                                                2003             2002
                                                               -----------    ----------
<S>                                                                  <C>             <C>
Dividend yield (as a percent of the fair value of the stock)         0%              0%
Expected life                                                  10 years        10 years
Expected volatility                                               0.01%           0.01%
Risk-free interest rate                                           4.25%           4.11%
</TABLE>


NOTE 9.  INCOME TAXES

         Income tax expense consists of the following:

                                                      Years Ended December 31,
                                                  ------------------------------
                                                     2003             2002
                                                  -------------    -------------

Current                                           $  (305,362)          482,989
Deferred                                             (118,016)        (248,703)

                                                  -------------   --------------
     Income tax expense (benefit)                 $  (423,378)          234,286
                                                  =============   ==============

                                      F-17
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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:


                                                2003                2002
                                            ---------------------------------
                                               Amount                Amount
                                            -----------           -----------

Income taxes at statutory rate               $(356,002)            $ 259,900
Tax-free income                                (34,261)               (3,882)
Surtax exemption                                 9,981                  --
State income tax (benefit)                     (36,177)              (12,560)
Other items                                     (6,918)               (9,172)
                                             ---------             ---------
     Income tax expense (benefit)            $(423,378)            $ 234,286
                                             =========             =========

      The components of deferred income taxes are as follows:

                                                       December 31,
                                             ------------------------------
                                                 2003               2002
                                             ----------         -----------
Deferred tax assets:
   Loan loss reserves                        $  871,270         $  624,835
   Deferred loan fees                            36,523             75,322
   Preopening and organization costs              4,337             17,684
   Stock options                                 12,740             19,079
   Deferred compensation                         36,194              6,113
   Nonaccrual loans                              36,362               --
   Contributions                                 17,225               --
   Other                                         14,690              6,792
   Securities available-for-sale                150,452
                                             ----------         ----------
                                              1,179,793            749,825
                                             ----------         ----------
Deferred tax liabilities:
   Depreciation                                 340,491            178,991
   Securities available-for-sale                   --               36,684
                                             ----------         ----------
                                                340,491            215,675
                                             ----------         ----------

          Net deferred tax assets            $  839,302         $  534,150
                                             ==========         ==========

                                      F-18
<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,
                                                   --------------------------
                                                      2003             2002
                                                   -----------    -----------

Basic Earnings (Losses) Per Share:
   Weighted average common shares outstanding        3,062,055      2,669,385
                                                   ===========    ===========

   Net income (loss)                               $  (623,690)   $   530,124
                                                   ===========    ===========

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

Diluted Earnings (Losses) Per Share:
   Weighted average common shares outstanding        3,062,055      2,669,385
   Net effect of the assumed exercise of stock
      options based on the treasury stock method
      using average market prices for the year          51,414         52,456
                                                   -----------    -----------
   Total weighted average common shares and
      common stock equivalents outstanding           3,113,469      2,721,841
                                                   ===========    ===========

   Net income (loss)                               $  (623,690)   $   530,124
                                                   ===========    ===========

   Diluted earnings (losses) per share             $      (.20)   $       .19
                                                   ===========    ===========


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,
                                          -----------------------------------
                                                2003               2002
                                          ----------------   ----------------

Commitments to extend credit              $    32,209,000    $    18,952,000
Financial standby letters of credit             1,408,000          1,583,000
Credit card commitments                         3,775,000          3,358,000
                                          ----------------   ----------------
                                          $    37,392,000    $    23,893,000
                                          ================   ================

                                      F-19
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11. COMMITMENTS AND CONTINGENCIES (Continued)

         Loan Commitments (Continued)

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

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

         At December 31, 2003 and 2002, 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, 2003 and 2002.

         Contingencies

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


NOTE 12. CONCENTRATIONS OF CREDIT

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

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

         The Company, as a matter of policy, does not generally extend credit to
         any single borrower or group of related borrowers in excess of 25% of
         statutory capital, or approximately $5,230,000.

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,
         2003, no dividends could be paid without regulatory approval.

                                      F-20
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13. Regulatory Matters (Continued)

         The Company and the Bank are subject to various regulatory capital
         requirements administered by the federal banking agencies. Failure to
         meet minimum capital requirements can initiate certain mandatory, and
         possibly additional discretionary actions by regulators that, if
         undertaken, could have a direct material effect on the consolidated
         financial statements. Under capital adequacy guidelines and the
         regulatory framework for prompt corrective action, the Company and the
         Bank must meet specific capital guidelines that involve quantitative
         measures of the Company's and Bank's assets, liabilities, and certain
         off-balance sheet items as calculated under regulatory accounting
         practices. Capital amounts and classification are also subject to
         qualitative judgments by the regulators about components, risk
         weightings, and other factors.

         Quantitative measures established by regulation to ensure capital
         adequacy require the Company and the Bank to maintain minimum amounts
         and ratios of Total and Tier I capital to risk-weighted assets and of
         Tier I capital to average assets. Management believes, as of December
         31, 2003 and 2002, the Company and the Bank met all capital adequacy
         requirements to which they are subject.

         As of December 31, 2003, 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, 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%

 December 31, 2002:
 Total Capital to Risk Weighted Assets
    Consolidated                            $  22,038      14.67%    $  12,018       8%    $    N/A       N/A
    Bank                                    $  21,132      14.08%    $  12,008       8%    $ 15,010       10%
 Tier I Capital to Risk Weighted Assets
    Consolidated                            $  20,159      13.42%    $   6,009       4%    $    N/A       N/A
    Bank                                    $  19,253      12.83%    $   6,004       4%    $  9,006        6%
 Tier I Capital to Average Assets
    Consolidated                            $  20,159      11.42%    $   7,062       4%    $    N/A       N/A
    Bank                                    $  19,253      10.96%    $   7,025       4%    $  8,781        5%
</TABLE>

                                      F-21
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

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

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

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

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

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

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

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

                                      F-22
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

         Off-Balance Sheet Instruments (Continued):

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

<TABLE>
<CAPTION>
                                                                December 31,
                                     --------------------------------------------------------------------
                                                   2003                               2002
                                     ---------------------------------   --------------------------------
                                        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                 $   11,520,409    $   11,520,409    $   10,790,660   $   10,790,660
   Securities available-for-sale         34,810,306        34,810,306        14,568,644       14,568,644
   Securities held-to-maturity                    -                 -           399,940          404,000
   Restricted equity securities           1,035,000         1,035,000           642,500          642,500
   Loans                                168,476,894       169,021,000       140,285,090      143,148,200
   Accrued interest receivable            1,119,512         1,119,512         1,074,143        1,074,143

Financial liabilities:
   Deposits                             183,538,216       184,558,430       143,720,881      144,822,869
   Other borrowings                      20,700,000        20,458,000        10,277,917       10,250,000
   Accrued interest payable                 264,895           264,895           370,562          370,562
</TABLE>


NOTE 15. SUPPLEMENTAL SEGMENT INFORMATION

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

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

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

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

                                      F-23
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15. SUPPLEMENTAL SEGMENT INFORMATION (Continued)

<TABLE>
<CAPTION>
                                                                 INDUSTRY SEGMENTS
                             ----------------------------------------------------------------------------------------
    For the Year Ended         Commercial                                     All
    December 31, 2003            Banking        Mortgage     Financial       Other      Eliminations         Total
---------------------------  ----------------  ------------  -----------  ------------  --------------  -------------
<S>                          <C>                 <C>         <C>          <C>           <C>             <C>
Interest income              $   11,828,987             -    $       -    $    1,132    $          -    $  11,830,119
Interest expense                  4,172,134                                                        -        4,172,134
Net interest income               7,656,853             -            -         1,132               -        7,657,985
(expense)
Intersegment net interest
    income (expense)                       -            -            -             -               -                -
Other revenue from
external
    sources                       1,200,740       203,780       18,400             -               -        1,422,920
Depreciation                        552,267             -            -             -               -          552,267
Provision for loan losses         3,676,614             -            -             -               -        3,676,614
Segment profit (loss)            (1,197,135)      203,656       18,033       (71,621)              -       (1,047,067)
Segment assets                  225,877,339       338,720       28,853       163,694       (436,507)      225,972,099
Expenditures for premises
    equipment                     2,811,535             -            -             -               -        2,811,535
</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,
                                                --------------------------
                                                   2003            2002
                                                ---------       ---------
Other income:
   Mortgage loan origination fees               $ 203,780       $ 205,860
   Gain on sale of loans                          149,641          22,835
Other expenses:
   Legal and professional                         233,761         175,107
   Stationery and supplies                        188,132         196,634
   Data processing                                338,240         317,806
   Other losses                                   169,399          24,869

                                      F-24
<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, 2003 and 2002:

                            CONDENSED BALANCE SHEETS

                                                         2003          2002
                                                     -----------   -----------

Assets
  Cash                                               $    97,676   $   780,828
  Investment in subsidiaries                          20,922,574    19,460,339
  Other assets                                            66,019        61,600
                                                     -----------   -----------

        Total assets                                 $21,086,269   $20,302,767
                                                     ===========   ===========

Liabilities
  Other liabilities                                       33,760        83,530
                                                     -----------   -----------
        Total liabilities                                 33,760        83,530
                                                     -----------   -----------

Stockholders' equity                                  21,052,509    20,219,237
                                                     -----------   -----------

        Total liabilities and stockholders' equity   $21,086,269   $20,302,767
                                                     ===========   ===========


                       CONDENSED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                          2003        2002
                                                                       ---------    ---------
<S>                                                                    <C>          <C>
Income:
Interest Income                                                        $   1,132    $  15,979
Dividends from subsidiary                                                   --         45,000
Other Income                                                                --            943
                                                                       ---------    ---------
                                                                       $   1,132    $  61,922
                                                                       ---------    ---------

Expenses:
  Employee benefits                                                         --           --
  Interest                                                                  --           --
  Other                                                                   72,753       79,644
                                                                       ---------    ---------
               Total expenses                                             72,753       79,644
                                                                       ---------    ---------

               Income (loss) before income tax benefits and equity
                 in undistributed income (distributions in excess
                 of loss) of subsidiaries                                (71,621)     (17,722)

Income tax benefits                                                      (27,030)     (23,669)
                                                                       ---------    ---------

               Income (loss) before equity in undistributed
                 income (distributions in excess of
                 loss) of subsidiaries                                   (44,591)       5,947

Equity in undistributed income (distributions in excess subsidiaries
   of loss) of subsidiaries                                             (579,099)     524,177
                                                                       ---------    ---------

               Net income (loss)                                       $(623,690)   $ 530,124
                                                                       =========    =========
</TABLE>

                                      F-25
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17. PARENT COMPANY FINANCIAL INFORMATION (Continued)

                       CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                2003           2002
                                                            ------------   ------------

<S>                                                         <C>            <C>
OPERATING ACTIVITIES
  Net income (loss)                                         $  (623,690)   $   530,124
  Adjustments to reconcile net income (loss) to
     net cash provided by (used in) operating activities:
     (Undistributed income) distributions in excess
        of loss of subsidiaries                                 579,099       (524,177)
     Net other operating activities                             (54,189)       (15,746)
     Net cash used in operating activities                      (98,780)        (9,799)
                                                            -----------    -----------

INVESTING ACTIVITIES
  Investment in subsidiaries                                 (2,380,000)   (5,650,,000)
                                                            -----------    -----------

          Net cash used in investing activities              (2,380,000)    (5,650,000)
                                                            -----------    -----------

FINANCING ACTIVITIES
  Proceeds from issuance of common stock                      1,795,628      6,419,319

          Net cash provided by financing activities           1,795,628      6,419,319
                                                            -----------    -----------

Net increase in cash                                           (683,152)       759,520

Cash at beginning of year                                       780,828         21,308
                                                            -----------    -----------

Cash at end of year                                         $    97,676    $   780,828
                                                            ===========    ===========
</TABLE>

                                      F-26
<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.


                                    PART III

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

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

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

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

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

                                       40
<PAGE>
Directors
---------

         Ralph 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 the Bank since their inception.

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

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

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

         Andrew M. ("Jack") Head, born May 22, 1953, is the 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
the Bank since their inception.

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

                                       41
<PAGE>
         Bruce Todd Howard, born March 17, 1967, is President of BTH Investment
and is the President and co-owner of The Lumber Depot d/b/a Coal Mountain
Builders Supply. He is a member of the Gilmer County Homebuilders Association.
Mr. Howard has served as a director of the Company and the Bank since their
inception.

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

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

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

         Russell M. Wallace, born June 3, 1954, is a founding partner of The
Wallace Investment Group, LLC, Tri-Vista Development Group, LLC, and Wallace
Landscape Group, LLC. He is President of The Cupboard, LLC. He is a member of
the First Baptist Church of Dawsonville, Dawson County Historical Society,
Dawson County Council of the Arts. He attended the University of Georgia. Mr.
Wallace serves as a director of the Company and the Bank as he has since their
inception.

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

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

                                       42
<PAGE>
Executive Officers
------------------

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

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

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

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

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

         Based solely upon a review of Forms 3, 4 and 5, and amendments thereto,
furnished to the Company pursuant to Rule 16a-3(d) during the year ended
December 31, 2003, 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 other than as follows: Jack Head filed one Form 4 for
a single transaction after its due date and Deborah McLeod filed one Form 4 for
a single transaction after its due date.


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

         The Board of Directors has adopted, effective December 31, 2003, 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

                                       43
<PAGE>
The Chief Executive Officer and the Chief Financial Officer are further
instructed to make recommendations to the Board of Directors periodically of
ways to improve such Code, and the Company will timely disclose any such
amendment in accordance with the regulations.

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

         The Audit Committee generally approves the engagement of our principal
accountant to render audit and non-audit services prior to the engagement of the
accountant and the provision of those services. The Audit Committee is
thereafter responsible for reviewing the financial statements and audit reports
of the Company's independent auditors, in serving as liaison with those
independent auditors on behalf of the Company, and discussing the audit function
and results of the audit with the Board of Directors pursuant to its Charter.
The Audit Committee operates pursuant to a Charter approved by the Company's
Board of Directors. The Audit Committee consists of Messrs. G. Grogan, Head,
McRae and Howard.

         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.


                                       44
<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, 2003, and all
cash and cash equivalent forms of compensation received by the chief executive
officer and all named executive officers of the Company as a group.

<TABLE>
<CAPTION>
                           SUMMARY COMPENSATION TABLE
                                                                                             LONG-TERM COMPENSATION
                                                                                              AWARDS        PAYOUTS
      (a)              (b)        (c)        (d)         (e)            (f)           (g)       (h)           (i)

NAME AND                                              OTHER ANNUAL   RESTRICTED     OPTION     LTIP          OTHER
PRINCIPAL POSITION     YEAR      SALARY      BONUS    COMPENSATION   STOCK AWARDS    SARs     PAYOUTS    COMPENSATION
<S>                    <C>     <C>          <C>           <C>            <C>        <C>        <C>        <C>
J. Philip Hester, Sr.  2003    $ 163,451    $ 6,585        -              -           -         -         $ 79,826(1)
CEO, President,        2002    $ 150,525    $ 6,272        -              -           -         -         $ 45,249(2)
Director               2001    $ 143,325    $ 5,972        -              -         42,000      -         $ 18,302(3)

James M. Curry         2003    $ 108,000    $ 4,375        -              -         15,000      -         $  4,629(1)
Executive VP           2002    $ 100,000    $ 4,167        -              -         15,000      -         $ 15,417(2)
                       2001        N/A      $ N/A         N/A            N/A          N/A       N/A           N/A

Deborah F. McLeod      2003    $ 108,000    $4,375         -              -         10,000       -        $    0
CFO, Senior VP         2002    $ 100,000    $4,167         -              -         10,000       -        $ 10,406(2)
                       2001        N/A      $ N/A         N/A            N/A          N/A       N/A           N/A
</TABLE>

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

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

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

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

         Each director (other than Mr. Hester, an employee of the Company and
the Bank) was granted an option to acquire 15,000 shares of our common stock in
the year ended December 31, 2000 and 1,000 shares of our common stock each in
the years ended December 31, 2001 through December 31, 2003. 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 through 2003 have an
exercise price of $10.00 per share and can be exercised at any time within 10
years from the date of the each grant. No director has as yet exercised his
option. Each director will be granted as of the first business day of each
calendar year after December 31, 2003 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

                                       46
<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, 2003 is $661,098 and the income recognized on the
policies amounted to $36,150 for the year ended December 31, 2003. The deferred
compensation liability was $95,914 and expense recognized was $79,714 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. Mr. Hester was granted an option to purchase 42,000 shares of
our common stock. The exercise price of the options is $8 per share, the fair
market value per share of our common stock at the time the options were granted,
payable in cash. The option expires ten years after the date earned. As of
December 31, 2003, Mr. Hester had already earned options to acquire up to 16,000
shares of the common stock under his original employment agreement after giving
effect to the two-for-one stock split in October 2000. A liability and an
expense of $33,760 was recorded for the year ended December 31, 2001 to reflect
the difference between the grant price of the options and the fair value of our
common stock. These options have a weighted-average exercise price of $4.89 and
expire in ten years. The weighted-average fair value of the options earned was
$7.00.

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

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

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

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

                                       47
<PAGE>
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.
No named executive officer has been granted options under the plan for the year
ended December 31, 2003.


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information with respect to the
beneficial ownership as of March 15, 2004, of shares of our common stock by the
following persons:

      o     each person known by us to be the beneficial owner of more than five
            percent of our outstanding common stock
      o     each of our directors and named executive officers

      o     all our directors and executive officers as a group, and the
            percentage of the outstanding shares of common stock represented
            thereby

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


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

Ralph Millard Bowen                     129,196 1                    4.1%
5072 Bristol Industrial Way
Buford, Georgia  30518

Marcus C. Byrd, Jr.                     137,192 2                    4.4%
1661 Highway 9 South
Dawsonville, Georgia  30534
Dawsonville, Georgia  30534

---------------------------
1 Includes 18,000 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 18,000 shares available upon exercise of his options and 20,000
shares held in trust by Mr. Byrd in his individual retirement account and 7,092
shares held by an affiliate, Byrd Howard Properties. The figure excludes 2,000
shares owned by Mr. Byrd's spouse for which he disclaims beneficial ownership,
but includes 2,100 shares held as custodian for his son and daughter.

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

James M. Curry                           5,000 3                    0.2%
312 Point Olympus Drive
Gainesville, Georgia  30506

Glennon C. Grogan                        79,126 4                   2.5%
6060 Jewell Bennett Road
Dawsonville, Georgia  30534

James H. Grogan                          82,206 5                   2.6%
4215 Dahlonega Highway
Cumming, Georgia  30130

Andrew M. Head                          119,646 6                   3.8%
2928 Ridgewood Road
Atlanta, Georgia  30327

J. Philip Hester, Sr.                    90,763 7                   3.6%
32 Lakeshore Circle
Dawsonville, Georgia  30534

Bruce T. Howard                         111,092 8                   3.6%
3315 Dahlonega Highway
Cumming, Georgia  30040

David E. Johnson                        177,446 9                   5.7%
260 Gold Leaf Terrace
Dawsonville, Georgia  30534
---------------------------

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

2 Includes 18,000 shares available upon exercise of his options but excludes 415
shares owned jointly by Mr. Grogan and his son, and 415 shares owned jointly by
Mr. Grogan and his daughter.

3 Includes 18,000 shares available upon exercise of his options and 3,000 shares
owned jointly by Mr. Grogan and his spouse.

4 Includes 18,000 shares available upon exercise of his options and 200 shares
owned by his son but excludes 2,000 shares owned by Mr. Head's spouse and 200
shares owned each by his two adult daughters, for which Mr. Head disclaims
beneficial ownership.

5 Includes 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.

6 Includes 18,000 shares available upon exercise of his options as well as
50,000 shares held jointly with his spouse, 36,000 shares held as custodian for
the benefit of his minor children and 7,092 shares held by an affiliate, Byrd
Howard Properties.

7 Includes 18,000 shares available upon exercise of his options as well as
88,000 shares held in an individual retirement account.

                                       49
<PAGE>

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

William A. McRae                           101,946 10                  3.3%
499 Johnson Ferry Road
Atlanta, Georgia  30328

Deborah F. McLeod                            1,700                     0.1%
33 Sheep Wallow Road
Dahlonega, Georgia  30533

Kim M. Mills                                42,446 11                  1.4%
57 Brights Way
Dawsonville, Georgia  30534

Russell M. Wallace                         155,196                     5.0%
77 Old River Road
Dahlonega, Georgia  30533

All executives officers and directors    1,232,955                    39.7%
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 in each footnote
within sixty days of December 31, 2003 such shares included in his beneficial
ownership pursuant to Rule 13d-3(d)(1) of the Securities Exchange Act of 1934.


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

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

--------------------------
1  Includes 18,000 shares available upon exercise of his options as well as
12,500 shares held in the McRae and Stolz Money Purchase Pension Plan.

2  Includes 18,000 shares available upon exercise of his options, 1,050 shares
held jointly with a family member, and 1,000 shares owned by his minor daughter
but excludes 1,000 shares owned each by Ms. Mills' two adult daughters, for
which Ms. Mills disclaims beneficial ownership.

                                       50
<PAGE>
         As of December 31, 2003, we had outstanding loans to certain of our
directors, executive officers and relatives of such persons and their
associates, which aggregated approximately $17,762,699. This represented
approximately 84% of our $21,052,509 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
 3.2              Bylaws
 10.2             Data Processing Contract
 10.3             International Services Agreement
 10.4             Employment Agreement
 10.5             Lease Agreement
 10.6             2000 Non-Employee Stock Option Plan
 10.7             2000 Employee Stock Option Plan
 10.8             Form of Non-Employee Stock Option Agreement
 10.9             Employee Stock Option Agreement
 10.10            Broker's Payee Contract
 10.11            Securities Brokerage Agreement
 10.12            Career Agency Banking Contract
 10.13            Subscription Agreement
 10.14            Operating Agreement
 10.15            Lease Agreement
 10.16            Lease Agreement
 11               Statement re: Computation of Per Share Earnings
 14               Code of Ethics
 21               Subsidiaries of the Registrant
 23               Consent of Mauldin & Jenkins, LLC
 24               Power of Attorney
 31               Rules 13a-14(a) and 15d-14(a) Certifications
 32               Certifications Pursuant to 18 U.S.C. Section 1350

                                       51
<PAGE>
Description of Exhibits
-----------------------

      3.1   Articles of Incorporation of Chestatee Bancshares, Inc. (1)
      3.2   Bylaws of Chestatee Bancshares, Inc. (1)
      10.2  Data Processing Contract between Chestatee State Bank and its
            successors, dated January 20, 1998 (2)
      10.3  International Services Agreement between Chestatee State Bank and
            The Bankers Bank, dated April, 27, 1998 (2)
      10.4  Amended and Restated Employment Agreement dated September 17, 2001
            between J. Philip Hester, Sr. and Chestatee Bancshares and Chestatee
            State Bank (2)
      10.5  Lease Agreement between BDR Properties, LLC and Chestatee State
            Bank, dated November 1, 2000 (1)
      10.6  2000 Non-Employee Stock Option Plan (2)
      10.7  2000 Employee Stock Option Plan (2)
      10.8  Form of Non-Employee Stock Option Agreement (2)
      10.9  Employee Stock Option Agreement between J. Philip Hester, Sr. and
            Chestatee Bancshares and Chestatee State Bank(2)
      10.10 Broker's Payee Contract between MML Insurance Agency, Inc. and
            Chestatee Financial, Inc. (4)
      10.11 Securities Brokerage Agreement between Chestatee Financial, Inc. and
            Agreement with MML Investors Services, Inc. (4)
      10.12 Career Agency System Banking Contract between Chestatee Bancshares,
            Inc., Stephen Squires, and the Massachusetts Mutual Life Insurance
            Company (4)
      10.13 Subscription Agreement between Chestatee Residential Mortgage, Inc.
            and Guaranty Mortgage Services, LLC, Guaranty First Mortgage, LLC
            and Shelter Mortgage Corporation (4)
      10.14 Operating Agreement between Chestatee Residential Mortgage, Inc. and
            Guaranty Mortgage Services, LLC, Guaranty First Mortgage, LLC and
            Shelter Mortgage Corporation (4)
      10.15 Lease between Chestatee State Bank and Norman Adams dated July 12,
            2001 (4)
      10.16 Lease Agreement between Chestatee State Bank and CSB Partners, LLP
            dated January 1, 2001 (4)

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

                                       52
<PAGE>
      11    Statement re: Computation of Per Share Earnings
      14    Code of Ethics for Principal Officers
      21    Subsidiaries of the Registrant(3)
      23    Consent of Mauldin & Jenkins, LLC
      24    Power of Attorney dated March 28, 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, 2003.


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

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

         The aggregate fees billed for professional services rendered by our
principal accountant for the audit of our annual financial statements for the
years ended December 31, 2003 and December 31, 2002 and the reviews of our
quarterly financial statements included with our quarterly reports on Forms
10-QSB during this two year period are $46,900 and $51,300, respectively.

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

         The aggregate fees billed by our principal accountant 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, 2003 and December 31,
2002 are $0 and $0, respectively. There were no other audit related services
rendered.

Tax Fees
--------

         The aggregate fees billed for professional services rendered by our
principal accountant for tax compliance, tax advice and tax planning for the
years ended December 31, 2003 and December 31, 2002 are $7,147 and $5,625,
respectively. The nature of those services were tax preparation fees.

                                       53
<PAGE>
All Other Fees
--------------

         The aggregate fees billed for professional services rendered by our
principal accountant for all other products and services for the years ended
December 31, 2003 and December 31, 2002 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, 2003, the audit committee
approved approximately 100% of audit services. There were no financial systems
design and implementation services or non-audit services.

                                       54
<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 28, 2004


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

                          DATE: March 28, 2004


                                       55
<PAGE>
         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.



/s/ J. Philip Hester, Sr.
-------------------------
J. Philip Hester, Sr.
Chief Executive Officer, President and
Director (principal executive officer)
March 28, 2004



----------------------
Ralph Millard Bowen
Director
March 28, 2004



/s/ Marcus C. Byrd, Jr.
-----------------------
Marcus C. Byrd, Jr.
Director
March 28, 2004


/s/ Glennon C. Grogan
----------------------
Glennon C. Grogan
Director
March 28, 2004



/s/ James H. Grogan
-------------------
James H. Grogan
Secretary and Director
March 28, 2004



/s/ Deborah F. McLeod
---------------------
Deborah F. McLeod
Chief Financial Officer (principal
accounting officer) and Senior Vice
President
March 28, 2004


                                       56
<PAGE>

/s/ Andrew M. Head
------------------
Andrew M. Head
Director
March 28, 2004


/s/ Bruce T. Howard
----------------------
Bruce T. Howard
Director
March 28, 2004



/s/ David E. Johnson
--------------------
David E. Johnson
Chairman of the Board of Directors
March 28, 2004



----------------------
William A. McRae
Director
March 28, 2004



/s/ Kim M. Mills
----------------
Kim M. Mills
Director
March 28, 2004



/s/ Russell M. Wallace
----------------------
Russell M. Wallace
Director
March 28, 2004

                                       57