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, 2001 or

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

                        Commission File Number: 000-30273

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

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

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

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

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

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

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

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

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

The issuer's revenues for the fiscal year ended December 31, 2001 were:
$ 9,065,691

There were 2,275,000 outstanding shares of common stock, no par value per share,
as of December 31, 2001. The aggregate market value of the voting stock of the
Registrant held by non-affiliates of the Registrant, as of December 31, 2001,
was $13,464,520 based on the last sales price on such date.

<PAGE>
                                     PART I
                                     ------

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

History
-------

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

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

         The Company's principal place of business is located at 6639 Highway 53
East, Dawsonville, Dawson County, Georgia. The Bank has conducted its general
banking business since opening on May 15, 1998, from its main office located at
6639 Highway 53 East, Dawsonville, Dawson County, Georgia. The Bank has three
full-service branches: one located in the Ingles Supermarket at the intersection
of Georgia Highway 400 and Georgia Highway 53, also in Dawsonville, Dawson
County, Georgia; a second located in downtown Dawsonville at 86 Highway 53 West,
Dawsonville, Dawson County, Georgia; and a third located in Pickens County,
Georgia at 34 Holcombe Way, Marblehill, Georgia. Chestatee Financial and
Chestatee Mortgage conduct their respective businesses at 6639 Highway 53 East,
Dawsonville, Dawson County, Georgia. The Bank has another branch providing loan
production services at 450 North Grove Street, Suite D, Dahlonega, Lumpkin
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.

         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.

                                       2
<PAGE>
         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 $73 million, or 64%, of the Bank's
total loans at December 31, 2001. 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, 2001, the Bank held approximately $27
million, or 24% 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, 2001, the Bank
held approximately $13 million in consumer loans, representing 12% 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 $5,000
to $250,000, depending on security, seniority and the type of loan. The
directors' loan committee, which consists of the president and six outside
directors, has a lending limit of $500,000. Loans above $500,000 require
approval by the majority of the full Board of Directors.

                                       3
<PAGE>
         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, 2001.

                                                             December 31, 2001

         Non-interest bearing demand........................       10%
         Interest-bearing demand............................       32%
         Savings............................................        2%
         Time Deposits......................................       29%
         Certificates of Deposit of $100,000 or more........       27%

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

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

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

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

                                       4
<PAGE>
         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 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 us opportunities to
expand and diversify business activities. 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, 2001, three non-locally owned banks had offices in
Dawson County and one locally owned banks had offices in Dawson County. Bank of
America, N.A., a bank headquartered in Charlotte, North Carolina, operates a
branch office in Dawson County. BB&T operates one office in Dawson County.
United Community Bank maintains a main office and two branch offices in Dawson
County. While there are no other financial institutions with offices in Dawson
County, numerous financial institutions within the Atlanta metropolitan area

                                       5
<PAGE>
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.

         Recent legislation enacted by the Georgia General Assembly 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, 2001, the Bank
had 50 full-time and 6 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, 2001, is as follows (audited, dollar amounts in thousands, except
for per share information):

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

A history of the Company's financial position for the year ended December 31,
2000, is as follows (audited, dollar amounts in thousands, except for per share
information):

Total Assets...........................................................$  82,430
Total Deposits.........................................................$  72,178
Total Shareholders Equity..............................................$   9,585
Net Income ............................................................$     550
Number of Issued and Outstanding Shares................................$   1,900
Book Value Per Share...................................................$    5.05
Net Income Per Share...................................................$     .29

                                       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 also 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.

         On November 12, 1999, the President signed into law legislation which
breaks down many of the barriers to affiliations among banks and securities
firms, insurance companies and other financial service providers. These barriers
were established by the 1933 Glass-Steagall Act. This Act prohibited bank
holding companies from owning subsidiaries that were engaged principally in the
issue, flotation, underwriting, public sale or distribution of securities. The
Glass-Steagall Act also prohibited securities firms from engaging in the
activities historically engaged in by banks and prohibited certain affiliations
between insurance companies, banks and securities firms. The new law will
provide financial organizations with the flexibility to structure new
affiliations through a holding company structure or a financial subsidiary. As a
result of this new law, the number and type of entities competing with us in our
markets could increase. It is too early to determine what effect, if any, this
new law will have on us.

         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.

                                       8
<PAGE>
         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
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.

                                       9
<PAGE>
         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.

         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.

                                       10
<PAGE>
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.

         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, 2001, 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

                                       11
<PAGE>
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.

         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

                                       12
<PAGE>
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
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 June30, 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 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

                                       13
<PAGE>
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.

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


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

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

         The Bank conducts its operations from its main office location at 6639
Highway 53 East, Dawsonville, Georgia 30534 and from three branches: its
supermarket branch at 120 South Center Lane, Dawsonville, Georgia 30534; its
downtown branch located at 86 Highway 53 West, Dawsonville, Dawson County,
Georgia 30534; and its Marblehill branch, located at 34 Holcomb Way, Marblehill,
Pickens County, Georgia 30148.

                                       14
<PAGE>
         The Bank's office consists of its main building with 4 drive-up windows
and an automated teller machine ("ATM") and an adjacent parking lot, situated on
1.1 acres of land. The supermarket branch has been in continuous operation since
it opened in September, 1998. The branch lease space is approximately 1,000
square feet, with an ATM but no drive-up windows. The monthly lease rental is
$2,500, with the lease expiring in 2003. The downtown branch has been in
continuous operation since it opened in October 2000. The branch lease space is
approximately 3,000 square feet, with an ATM and one drive-up window. The
monthly lease rental is $3,500, with the lease expiring in 2003. The Bank's
branch in Pickens County consists of approximately 3,300 square feet, with 2
drive-up windows and an ATM, with an adjacent parking lot, situated on 1.08
acres. The building and land of the new branch is owned by the Bank and opened
in May 2001. The loan production services branch in Lumpkin County consists of
1,000 square feet of leased space. The monthly lease rental is $750, with the
lease expiring in 2003.  The Bank also leases 5,600 square feet of office space
adjacent to the Bank for administrative offices.  The monthly lease rental is
$3,375, with the lease expiring in 2003.  The space is owned by CSB Partners,
LLP, an entity owned by all of our directors.

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


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

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

         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, 2001 to a vote of security holders through the
solicitation of proxies or otherwise.


                                       15
<PAGE>
                                     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. With the exception of
our public offering of 600,000 shares during the fourth quarter of 2001 and the
first quarter of 2002, our common stock is traded infrequently in private
transactions. Therefore, no substantial reliable information is available as to
trades of the common stock or as to the prices at which common stock has traded.
We have no reason to expect an established trading market will develop in our
common shares.

         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. The Company did not pay a stock
dividend to our shareholders in 1999. In the year ended December 31, 2000, we
effected a two-for-one share split of its common stock in the form of a common
stock dividend to shareholders of record as of the close of business on October
31, 2000. As a result of the stock split, the number of shares of common stock
issued and outstanding increased from 950,000 to 1,900,000 and the market value
per share of the common stock, based upon the limited trading information
available to management, dropped from $16.00 per share to approximately $8.00
per share. We did not pay a stock dividend to our shareholders in 2001.

         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. Management
has reviewed the limited information available as to the ranges at which our
common stock has been sold. The following table sets forth the estimated price
range for sales of our common stock for each quarter of the last two fiscal
years, after adjustment to reflect the two-for-one share split of our common
stock, based on limited available information.

------------------     ----------------   ------------------   -----------------
       YEAR            NUMBER OF SHARES   HIGH SELLING PRICE   LOW SELLING PRICE
                          TRADED(1)
------------------     ----------------   ------------------   -----------------
2000
    First Quarter          1,000                $8.00               $8.00
    Second Quarter         1,750                $8.00               $8.00
    Third Quarter          5,350                $9.00               $8.00
    Fourth Quarter         1,400                $10.00              $9.00

2001
    First Quarter           N/A                  N/A                 N/A
    Second Quarter         2,000                $10.00             $10.00
    Third Quarter         11,070                $10.00              $8.00
    Fourth Quarter        375,000               $10.00             $10.00

(1) According to information available to us, the table includes trades between
family members with respect to 400 shares during the year ended December 31,
2001. The table also includes trades between family members with respect to
10,000 shares during the years ended December 31, 2000. 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.

                                       16
<PAGE>
As of December 31, 2001, the Company had 2,275,000 shares of its voting common
stock held by approximately 744 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. 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 Federal Deposit
Insurance Corporation Improvement Act of 1991. See "Business - Supervision and
Regulation".

         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. See "Business - Supervision and
Regulation".

         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.

                                       17
<PAGE>
ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
------------------------------------------------------------------

         The following is a discussion of our financial condition and the
financial condition of our bank subsidiary, Chestatee State Bank, our mortgage
subsidiary, Chestatee Mortgage, and our financial services subsidiary, Chestatee
Financial, at December 31, 2001 and 2000 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.

Overview
--------

         The year 2001 was highlighted by significant loan and deposit growth
despite a downturn in the national and state economy exacerbated by the effects
of the September 11, 2001 terrorist attacks. In 2001, we reported a net loss of
$93,000 as compared to net income in 2000 of $550,000. The decrease in earnings
was primarily due to: (1) a decrease in the net yield earned on our
interest-earning assets as the prime rate dropped eleven times in 2001 to 4.75%
at December 31, 2001, (2) an increase in the provision for loan losses, and (3)
increased operating costs associated with the opening of an additional branch
and our overall growth. Our primary market area of Dawson County, Georgia
continues to grow, and we are strategically positioned to take advantage of the
growth. To supplement our growth, we are currently offering to sell up to a
maximum of 950,000 shares of our common stock at a price of $10 per share. As of

                                       18
<PAGE>
December 31, 2001, 375,000 shares of common stock had been sold and issued. We
also added new product lines with the opening of Chestatee Mortgage that
provides residential mortgage lending and origination services and Chestatee
Financial that provides investment and financial services. The effect on the
results of operations from these new activities was not significant for 2001.
However, we anticipate increased earnings from the offering of these services in
the future.

Financial Condition at December 31, 2001 and 2000
-------------------------------------------------

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

<TABLE>
<CAPTION>
                                                               December 31,
                                                           2001           2000
                                                        (Dollars in Thousands)

<S>                                                     <C>             <C>
Cash and due from banks                                 $  3,479        $  5,017
Interest-bearing deposits in banks                         1,300              15
Federal funds sold                                        15,318           2,730
Securities                                                 1,548           3,639
Loans, net                                               111,493          66,329
Premises and equipment                                     5,059           3,632
Other assets                                               1,938           1,068
                                                        --------        --------

                                                        $140,135        $ 82,430
                                                        ========        ========

Total deposits                                          $113,622        $ 72,178
Other borrowings                                          12,850              50
Other liabilities                                            480             617
Stockholders' equity                                      13,183           9,585
                                                        --------        --------

                                                        $140,135        $ 82,430
                                                        ========        ========
</TABLE>

Financial Condition at December 31, 2001 and 2000
-------------------------------------------------

         As of December 31, 2001, we had total assets of $140.1 million, an
increase of 70% over December 31, 2000. Total interest-earning assets were
$130.9 million at December 31, 2001 or 93% of total assets as compared to 89% of
total assets at December 31, 2000. Our primary interest-earning assets at
December 31, 2001 were loans, which made up 86% of total interest-earning assets
as compared to 91% at December 31, 2000. Our ratio of loans to deposits and
other borrowings was 89% at December 31, 2001 as compared to 93% at December 31,
2000. Deposit growth of $41.4 million, new borrowings from the Federal Home Loan
Bank of $12.8 million, and net proceeds from our stock offering of $3.7 million
were used to fund loan growth of $45.7 million with the majority of the balance
being temporarily invested in federal funds sold.

                                       19
<PAGE>
         Our securities portfolio, consisting of U.S. Agency and restricted
equity securities, amounted to $1.5 million at December 31, 2001. Unrealized
gains on securities available-for-sale were $5,000 at December 31, 2001 as
compared to unrealized losses of $2,000 at December 31, 2000. Unrealized gains
on securities held-to-maturity were $14,000 at December 31, 2001 as compared to
unrealized losses of $9,000 at December 31, 2000. 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 64% 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 (32%), construction loans to build one to
four-family residential properties (29%), and nonresidential properties
consisting primarily of small business commercial properties (39%). We generally
require that loans collateralized by real estate not exceed 80% of the
collateral value.

         The remaining 36% of the loan portfolio consists of commercial,
consumer, and other loans. We require collateral commensurate with the repayment
ability and creditworthiness of the borrower.

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

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

         Construction lending can also present other specific risks to the
lender such as whether developers can find builders to buy lots for home
construction, whether the builders can obtain financing for the construction,
whether the builders can sell the home to a buyer, and whether the buyer can
obtain permanent financing. Currently, real estate values and employment trends
in our market area are stable with no indications of a significant downturn in
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.

                                       20
<PAGE>
Liquidity and Capital Resources
-------------------------------

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

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

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

         At December 31, 2001, we had loan commitments outstanding of $25.9
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, 2001, we had arrangements with three commercial
banks for additional short-term advances of $4.0 million.

         At December 31, 2001, our capital ratios were considered adequate based
on regulatory minimum capital requirements. Stockholders' equity increased in
2001 by $3.6 million as a net loss of $93,000 was offset by net proceeds
received from our stock offering of $3.7 million, and an increase in other
comprehensive income related to our securities available-for-sale of $5,000. 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, 2001, no dividends could be paid by the Bank without
regulatory approval. The Bank paid a dividend to us of $145,000 in February of
2001 that was used to pay holding company operating expenses and debt.

         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, 2001 are as follows:

                                       21
<PAGE>

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

Leverage capital ratio                  10.78%       10.78%        5.00%
Risk-based capital ratios:
   Core capital                         11.04        11.04         6.00
   Total capital                        12.09        12.09        10.00

         At December 31, 2001, we had no material commitments for capital
expenditures. These ratios may decline as asset growth continues, but are
expected to exceed the regulatory minimum requirements. Anticipated future
earnings and additional capital raised from our current stock offering will
assist in keeping these ratios at satisfactory levels.

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

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

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

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

                                       22
<PAGE>
Results of Operations For The Years Ended December 31, 2001 and 2000
--------------------------------------------------------------------

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

                                                 Years Ended December 31,
                                                  2001              2000
                                                  (Dollars in Thousands)

Interest income                                 $ 8,500           $ 6,180
Interest expense                                  4,360             2,824
                                                -------           -------
Net interest income                               4,140             3,356

Provision for loan losses                           568               347
Other income                                        565               432
Other expenses                                    4,313             2,881
                                                -------           -------
Pretax income (loss)                               (176)              560
Income taxes (benefits)                             (83)               10
                                                -------           -------
Net income (loss)                               $   (93)          $   550
                                                =======           =======

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

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

         The net yield on average interest-earning assets was 4.27% in 2001 as
compared to 5.45% in 2000. Average loans increased by $36.6 million which were
the primary change in average interest-earning assets that increased overall by
$35.3 million. Average interest-bearing liabilities increased by $32.8 million
with average time deposits accounting for the vast majority of this increase.
The rate earned on average interest-earning assets decreased to 8.78% in 2001
from 10.03% in 2000. The rate paid on average interest-bearing liabilities
decreased to 5.20% in 2001 as compared to 5.53% in 2000. The decrease in our net
yield was due primarily to the falling rate environment experienced in 2001. As
our interest-bearing liabilities mature and are repriced, we expect to see our
net yield increase.

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

         The provision for loan losses was $568,000 in 2001 as compared to
$347,000 in 2000. The amounts provided are due primarily to loan growth,
increased net loan charge offs, increased nonaccrual and past due loans, and to
our assessment of the inherent risk in the loan portfolio. While net loan charge
offs, nonaccrual, past due and potential problem loans have increased in total
since December 31, 2000, the volume of these loans is well within acceptable
industry averages. The increases in these categories are primarily associated
with the aging of our loan portfolio and are not unexpected for a de novo bank.
Management believes that the $1,252,000 in the allowance for loan losses at
December 31, 2001, or 1.11% of total net outstanding loans and the

                                       23
<PAGE>
$737,000 in the allowance for loan losses at December 31, 2000, or 1.10% 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 $565,000
in 2001 as compared to $432,000 in 2000. The net increase is due primarily to an
increase in service charges on deposit accounts of $113,000 related to overall
deposit growth, increased credit card income of $26,000, and a decrease in
mortgage loan origination fees of $22,000.

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

         Other expenses were $4,313,000 in 2001 as compared to $2,881,000 in
2000, an increase of $1,432,000. Salaries and employees benefits increased by
$656,000 due to an increase in the number of full time equivalent employees to
56 at December 31, 2001 from 37 at December 31, 2000 and other annual salary
increases. The increase in the number of employees is due to the adding of a new
branch in 2001 and to our overall growth. Equipment and occupancy expenses
increased by $195,000 due primarily to increased depreciation costs of $85,000,
increased repairs and maintenance costs of $47,000, and increased rental
expenses of $55,000. Other operating expenses increased by $581,000 due
primarily to increased data processing costs of $99,000, increased legal and
professional fees of $45,000, increased stationery and supplies expense of
$72,000, increased advertising costs of $22,000, increased
telephone/communications costs of $41,000, and increased other operating costs
of $302,000. The increases in other operating expenses are directly attributable
to the overall growth of the Bank.

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

         We have reported income tax benefits in 2001 of $83,000 as compared to
income tax expense in 2000 of $10,000. The rate of the tax benefit as a
percentage of our pretax loss was 47%. This percentage is higher than the
federal statutory percentage of 34% due to current taxable income as reported on
our income tax return being taxed at a 15% rate, accounting for a 9% surtax
exemption benefit. Also, state income tax benefits recognized accounted for an
additional 6% reduction in our overall tax rate. In 2000, the rate of the tax
expense as a percentage of our pretax income was 2%. This percentage is lower
than the federal statutory percentage of 34% due to the recognition of deferred
tax benefits of $168,000 previously accorded a valuation allowance

                                       24
<PAGE>
Asset/Liability Management
--------------------------

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

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

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

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

                                       25
<PAGE>
         At December 31, 2001, our cumulative one year interest rate-sensitivity
gap ratio was 108%. 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,
2001, the interest rate-sensitivity gap, the cumulative interest
rate-sensitivity gap, the interest rate-sensitivity gap ratio and the cumulative
interest rate-sensitivity gap ratio. The table also sets forth the time periods
in which interest-earning assets and interest-bearing liabilities will mature or
may reprice in accordance with their contractual terms. However, the table does
not necessarily indicate the impact of general interest rate movements on the
net interest margin as the repricing of various categories of assets and
liabilities is subject to competitive pressures and the needs of our customers.
In addition, various assets and liabilities indicated as repricing within the
same period may in fact, reprice at different times within such period and at
different rates.

<TABLE>
<CAPTION>
                                            After        After
                                            Three         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      $  1,300   $   --      $   --     $   --     $  1,300
     Federal funds sold           15,318       --          --         --       15,318
     Securities                      643       --           905       --        1,548
     Loans                        60,955     27,209      18,858      5,723    112,745
                                --------   --------    --------   --------   --------

                                  78,216     27,209      19,763      5,723    130,911
                                --------   --------    --------   --------   --------

Interest-bearing liabilities:
     Interest-bearing demand
         deposits                 36,423       --          --         --       36,423
     Savings                       2,585       --          --         --        2,585
     Certificates of deposit      15,771     40,122       7,258         95     63,246
     Other borrowings               --        2,600      10,250       --       12,850
                                --------   --------    --------   --------   --------

                                  54,779     42,722      17,508         95    115,104
                                --------   --------    --------   --------   --------

Interest rate sensitivity
     gap                        $ 23,437   $(15,513)   $  2,255   $  5,628   $ 15,807
                                ========   ========    ========   ========   ========
Cumulative interest rate
     sensitivity gap            $ 23,437   $  7,924    $ 10,179   $ 15,807
                                ========    ========   ========   ========
Interest rate sensitivity
     gap ratio                      1.43         .64       1.13      60.24
                                ========    ========   ========   ========
Cumulative interest rate
     sensitivity gap ratio          1.43        1.08       1.09       1.14
                                ========    ========   ========   ========
</TABLE>

                                       26
<PAGE>
               SELECTED FINANCIAL INFORMATION AND STATISTICAL DATA

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

                                       27
<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)

<TABLE>
<CAPTION>
                                             Years Ended December 31,
                                                2001         2000
                                             (Dollars in Thousands)
          ASSETS
<S>                                         <C>          <C>
Cash and due from banks                     $   2,694    $   2,185
Interest-bearing deposits in banks                326         --
Taxable securities                              2,307        3,767
Securities valuation account                        3           (7)
Federal funds sold                              3,730        3,964
Loans (2)                                      90,504       53,874
Allowance for loan losses                        (910)        (526)
Other assets                                    5,470        3,803
                                            ---------    ---------
                                            $ 104,124    $  67,060
                                            =========    =========

Total interest-earning assets               $  96,867    $  61,605
                                            =========    =========

    LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits:
     Noninterest-bearing demand             $  10,047    $   6,214
     Interest-bearing demand                   27,208       19,654
     Savings                                    1,735          828
     Time                                      54,084       30,605
                                            ---------    ---------
              Total deposits                   93,074       57,301

     Other borrowings                             868           26
     Other liabilities                            578          371
                                            ---------    ---------
              Total liabilities                94,520       57,698
     Stockholders' equity                       9,604        9,362
                                            ---------    ---------
                                            $ 104,124    $  67,060
                                            =========    =========

     Total interest-bearing liabilities     $  83,895    $  51,113
                                            =========    =========
</TABLE>

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

(2)  Nonaccrual loans included in average balances for 2001 and 2000 were
     $383,000 and $0, respectively.

                                       28
<PAGE>
Interest Income and Interest Expense
------------------------------------

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

<TABLE>
<CAPTION>
                                                                 Years Ended December 31,
                                                              2001                       2000
                                                                      Average                  Average
                                                     Interest          Rate      Interest       Rate
                                                                    (Dollars in Thousands)

<S>                             <C>                  <C>               <C>      <C>             <C>
INTEREST INCOME:
     Interest and fees on loans (1)                  $  8,197          9.06%    $   5,702       10.58%
     Interest on deposits in banks                         19          5.84            --       --
     Interest on taxable securities                       128          5.58           216        5.73
     Interest on federal funds sold                       156          4.17           262        6.62
                                                        -----                      ------
     Total interest income                              8,500          8.78         6,180       10.03
                                                        -----                       -----

INTEREST EXPENSE:
     Interest on interest-bearing
       demand deposits                                  1,014          3.73           824        4.20
     Interest on savings deposits                          47          2.70            25        2.97
     Interest on time deposits                          3,280          6.06         1,973        6.45
     Interest on other borrowings                          19          2.27             2        9.00
                                                        -----                       -----
     Total interest expense                             4,360          5.20         2,824        5.53
                                                        -----                       -----

NET INTEREST INCOME                                  $  4,140                    $  3,356
                                                                                    =====

     Net interest spread                                               3.58%                     4.50%
                                                                       ====                      ====
     Net yield on average interest-earning assets                      4.27%                     5.45%
                                                                       ====                      ====
</TABLE>

(1)  Interest and fees on loans includes $823,000 and $452,000 of loan fee
     income for the years ended December 31, 2001 and 2000, respectively. There
     was no interest income recognized on nonaccrual loans during 2001 or 2000.

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

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

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

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

<TABLE>
<CAPTION>
                                                      Year Ended December 31,
                                                           2001 vs. 2000
                                                          Changes Due To:

                                                    Rate     Volume       Net
                                                      (Dollars in Thousands)
<S>                                               <C>        <C>        <C>
Increase (decrease) in:
     Income from interest-earning assets:
     Interest and fees on loans                   $  (920)   $ 3,415    $ 2,495
     Interest on deposits in banks                   --           19         19
     Interest on taxable securities                    (6)       (82)       (88)
     Interest on federal funds sold                   (92)       (14)      (106)
                                                  -------    -------    -------
              Total interest income                (1,018)     3,338      2,320
                                                  -------    -------    -------

     Expense from interest-bearing liabilities:
     Interest on interest-bearing
              demand deposits                        (100)       290        190
     Interest on savings deposits                      (2)        24         22
     Interest on time deposits                       (123)     1,430      1,307
     Interest on other borrowings                      (1)        18         17
                                                  -------    -------    -------
              Total interest expense                 (226)     1,762      1,536
                                                  -------    -------    -------

              Net interest income                 $  (792)   $ 1,576    $   784
                                                  =======    =======    =======
</TABLE>

                              INVESTMENT PORTFOLIO

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

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

                                                        December 31,
                                                2001                  2000
                                                    (Dollars in Thousands)

     U.S. Government agencies                $   905                 $ 3,543
     Restricted equity securities                643                      96
                                               -----                   -----
                                             $ 1,548                 $ 3,639
                                               =====                   =====


                                       30
<PAGE>
Maturities

         The amounts of debt securities in each category as of December 31, 2001
are shown in the following table according to contractual maturity
classifications:

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

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

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

<S>                           <C>           <C>          <C>          <C>           <C>           <C>
U.S. Government agencies      $   --        -%           $ 905        5.35%         $ --          -%
                               =====                       ===                       ===
</TABLE>

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

<S>                           <C>              <C>         <C>         <C>
U.S. Government agencies      $   --           -%          $ 905       5.35%
                               =====                         ===
</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.


                                 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,
                                    2001         2000
                                  (Dollars in Thousands)

Commercial                       $  26,666    $  16,896
Real estate-construction            20,880        7,707
Real estate-mortgage                51,632       33,451
Consumer installment and other      13,567        9,012
                                 ---------    ---------
                                   112,745       67,066
Less allowance for loan losses      (1,252)        (737)
                                 ---------    ---------
          Net loans              $ 111,493    $  66,329
                                 =========    =========

                                       31
<PAGE>
Maturities and Sensitivities of Loans to Changes in Interest Rates
------------------------------------------------------------------

         Total loans as of December 31, 2001 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                                    $ 14,234
     After one through five years                           9,373
     After five years                                       3,059
                                                         --------
                                                           26,666

Construction
     One year or less                                      20,880
     After one through five years                            --
     After five years                                        --
                                                         --------
                                                           20,880

Other
     One year or less                                      31,838
     After one through five years                          25,092
     After five years                                       8,269
                                                         --------
                                                           65,199

                                                         $112,745

         The following table summarizes loans at December 31, 2001 with the due
dates after one year that have predetermined and floating or adjustable interest
rates.

                                                   (Dollars in Thousands)

      Predetermined interest rates                       $ 16,880
      Floating or adjustable interest rates                25,913
                                                           ------
                                                         $ 45,793
                                                         ========

                                       32
<PAGE>
Risk Elements
-------------

         Information with respect to nonaccrual, past due, restructured and
other problem loans at December 31, 2001 and 2000 is as follows:

                                                       December 31,
                                                  2001             2000
                                                 (Dollars in Thousands)

Nonaccrual loans                                  $874             $  0
Loans contractually past due ninety
     days or more as to interest or
     principal payments and still accruing         120                1
Restructured loans                                   0                0
Potential problem loans                            200              696
Interest income that would have been recorded
     on nonaccrual and restructured loans under
     original terms                                 28                0
Interest income that was recorded on
     nonaccrual and restructured loans               0                0

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

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

                                       33
<PAGE>
                         SUMMARY OF LOAN LOSS EXPERIENCE

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

                                            Years Ended December 31,
                                               2001       2000
                                            (Dollars in Thousands)

Average amount of loans outstanding           $90,504    $53,874
                                              =======    =======

Balance of allowance for loan losses
     at beginning of year                     $   737    $   397
                                              =======    -------

Loans charged off
     Commercial and financial                    --         --
     Real estate- mortgage                       --            7
     Installment                                   58       --
                                              -------    -------
                                                   58          7
                                              -------    -------

Loans recovered
     Commercial and financial                    --         --
     Real estate mortgage                        --         --
     Installment                                    5       --
                                              -------    -------
                                                    5       --
                                              -------    -------

Net charge-offs                                    53          7
                                              -------    -------

Additions to allowance charged to operating
     expense during year                          568        347
                                              -------    -------

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

Ratio of net loans charged off during the
     year to average loans outstanding            .06%       .01%
                                              =======    =======

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

         The allowance for loan losses is maintained at a level that is deemed
appropriate by management to adequately cover all known and inherent risks in
the loan portfolio. Management's evaluation of the loan portfolio includes a
loan classification program. Under the program, as each loan is made, we assign
a loan grade. Each loan grade is assigned an allowance percentage determined
based on our experience specifically and the historical experience of the
banking industry generally. Loan classifications are then subject to periodic
review by the responsible lending officers and by senior management based upon
their judgment, our loan loss

                                       34
<PAGE>
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, 2001 and 2000, 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, 2001                December 31, 2000
                                       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                   $  376            24%            $  221            25%
Real estate - construction      125            18                 74            12
Real estate - mortgage          626            46                368            50
Consumer installment
     loans and other            125            12                 74            13
                             ------          ----             ------          ----
                             $1,252           100%            $  737           100%
                             ======          ====             ======          ====
</TABLE>

                                    DEPOSITS

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

<TABLE>
<CAPTION>
                                                            Years Ended December 31,
                                                  2001                                   2000
                                          Amount         Percent                 Amount          Percent
                                                               (Dollars in Thousands)

<S>                                     <C>                <C>                    <C>              <C>
Noninterest-bearing demand deposits     $10,047              --%                  $ 6,214          --  %
Interest-bearing demand deposits         27,208            3.73                    19,654          4.20
Savings deposits                          1,735            2.70                       828          2.97
Time deposits                            54,084            6.06                    30,605          6.45
                                         ------                                    ------
                                        $93,074                                   $57,301
                                         ======                                    ======
</TABLE>

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

                                       35
<PAGE>
         The amounts of time certificates of deposit issued in amounts of
$100,000 or more as of December 31, 2001 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                               $  8,989
     Over three months through six months                 11,098
     Over six through twelve months                        7,822
     Over twelve months                                    2,903
                                                          ------
              Total                                     $ 30,812
                                                          ======


                    RETURN ON ASSETS AND STOCKHOLDERS' EQUITY

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

                                               Years Ended December 31,
                                             2001                     2000

     Return on assets (1)                   (.09)%                     .82%
     Return on equity (2)                   (.98)                     5.87
     Dividend payout ratio (3)              -                         -
     Equity to assets ratio (4)             9.22                     13.96

(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.

                                       36
<PAGE>
ITEM 7 - FINANCIAL STATEMENTS
-----------------------------






<PAGE>


                      CHESTATEE BANCSHARES, INC.
                           AND SUBSIDIARIES

                     CONSOLIDATED FINANCIAL REPORT

                           DECEMBER 31, 2001


<PAGE>
                           CHESTATEE BANCSHARES, INC.
                                AND SUBSIDIARIES

                          CONSOLIDATED FINANCIAL REPORT
                                DECEMBER 31, 2001




                                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-7-24

<PAGE>
                          INDEPENDENT AUDITOR'S REPORT


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


                  We have audited the accompanying consolidated balance sheets
of Chestatee Bancshares, Inc. and subsidiaries as of December 31, 2001 and 2000,
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, 2001 and 2000,
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 21, 2002

                                       F-1
<PAGE>
                   CHESTATEE BANCSHARES, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2001 AND 2000

<TABLE>
<CAPTION>
                                     Assets                                       2001           2000
                                     ------                                   ------------   ------------

<S>                                                                           <C>            <C>
Cash and due from banks                                                       $  3,479,452   $  5,017,193
Interest-bearing deposits in banks                                               1,299,930         14,801
Federal funds sold                                                              15,318,000      2,730,000
Securities available-for-sale                                                      505,469      2,144,456
Securities held-to-maturity, fair value of $413,875
   and $1,390,057, respectively                                                    399,627      1,399,315
Restricted equity securities, at cost                                              642,500         95,600

Loans                                                                          112,745,782     67,066,299
Less allowance for loan losses                                                   1,252,461        736,898
                                                                              ------------   ------------
          Loans, net                                                           111,493,321     66,329,401

Premises and equipment                                                           5,058,963      3,631,474
Other assets                                                                     1,937,862      1,067,412
                                                                              ------------   ------------

          Total assets                                                        $140,135,124   $ 82,429,652
                                                                              ============   ============

                      Liabilities and Stockholders' Equity

Deposits
    Noninterest-bearing                                                       $ 11,367,999   $  7,547,972
    Interest-bearing                                                           102,253,672     64,630,121
                                                                              ------------   ------------
          Total deposits                                                       113,621,671     72,178,093
Other borrowings                                                                12,850,000         50,000
Other liabilities                                                                  480,472        616,423
                                                                              ------------   ------------
          Total liabilities                                                    126,952,143     72,844,516
                                                                              ------------   ------------

Commitments and contingencies

Stockholders' equity
    Common stock; no par value; 20,000,000 shares authorized;
        2,275,000 and 1,900,000 shares issued and outstanding, respectively     13,169,370      9,482,364
    Retained earnings                                                               10,220        103,907
    Accumulated other comprehensive income (loss)                                    3,391         (1,135)
                                                                              ------------   ------------
          Total stockholders' equity                                            13,182,981      9,585,136
                                                                              ------------   ------------

          Total liabilities and stockholders' equity                          $140,135,124   $ 82,429,652
                                                                              ============   ============
</TABLE>

See Notes to Consolidated Financial Statements.

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

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     YEARS ENDED DECEMBER 31, 2001 AND 2000

<TABLE>
<CAPTION>
                                                                    2001           2000
                                                                -----------    -----------
<S>                                                             <C>            <C>
Interest income
    Loans                                                       $ 8,197,123    $ 5,701,920
    Taxable securities                                              128,632        215,785
    Federal funds sold                                              155,647        262,527
    Interest-bearing deposits in banks                               19,044           --
                                                                -----------    -----------
          Total interest income                                   8,500,446      6,180,232
                                                                -----------    -----------

Interest expense
    Deposits                                                      4,340,933      2,822,070
    Other borrowings                                                 19,735          2,355
                                                                -----------    -----------
          Total interest expense                                  4,360,668      2,824,425
                                                                -----------    -----------

          Net interest income                                     4,139,778      3,355,807
Provision for loan losses                                           568,279        347,200
                                                                -----------    -----------
          Net interest income after provision for loan losses     3,571,499      3,008,607
                                                                -----------    -----------

Other income
    Service charges on deposit accounts                             417,232        304,606
    Other operating income                                          148,013        127,148
                                                                -----------    -----------
          Total other income                                        565,245        431,754
                                                                -----------    -----------

Other expense
    Salaries and employee benefits                                2,032,709      1,376,752
    Equipment and occupancy expense                                 595,226        399,647
    Other operating expenses                                      1,685,438      1,104,152
                                                                -----------    -----------
          Total other expense                                     4,313,373      2,880,551
                                                                -----------    -----------

          Income (loss) before income tax (benefit)                (176,629)       559,810

Income tax expense (benefit)                                        (82,942)         9,850
                                                                -----------    -----------

          Net income (loss)                                     $   (93,687)   $   549,960
                                                                ===========    ===========

Basic and diluted earnings (losses) per share                   $     (0.05)   $      0.29
                                                                ===========    ===========
</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, 2001 AND 2000

<TABLE>
<CAPTION>
                                                                 2001       2000
                                                              ----------   --------

<S>                                                            <C>         <C>
Net income (loss)                                              $(93,687)   $549,960

Other comprehensive income:
        Unrealized holding gains on securities
           available-for-sale arising during period, net of
           tax (benefits) of $2,774 and $(696), respectively      4,526       8,084
                                                               --------    --------

Comprehensive income (loss)                                    $(89,161)   $558,044
                                                               ========    ========
</TABLE>

See Notes to Consolidated Financial Statements.

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

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                     YEARS ENDED DECEMBER 31, 2001 AND 2000

<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, 1999            950,000   $  9,482,364    $   (446,053)   $     (9,219)   $  9,027,092
    Net income                           --             --           549,960            --           549,960
    Stock split                       950,000           --              --              --              --
    Other comprehensive income           --             --              --             8,084           8,084
                                 ------------   ------------    ------------    ------------    ------------
Balance, December 31, 2000          1,900,000      9,482,364         103,907          (1,135)      9,585,136
    Net loss                             --             --           (93,687)           --           (93,687)
    Issuance of common stock          375,000      3,750,000            --              --         3,750,000
    Stock issue costs                    --          (62,994)           --              --           (62,994)
    Other comprehensive income           --             --              --             4,526           4,526
                                 ------------   ------------    ------------    ------------    ------------
Balance, December 31, 2001          2,275,000   $ 13,169,370    $     10,220    $      3,391    $ 13,182,981
                                 ============   ============    ============    ============    ============
</TABLE>

See Notes to Consolidated Financial Statements.

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

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 2001 AND 2000

<TABLE>
<CAPTION>
                                                                     2001           2000
                                                                -------------   -------------
<S>                                                             <C>             <C>
OPERATING ACTIVITIES
    Net income (loss)                                           $    (93,687)   $    549,960
    Adjustments to reconcile net income (loss) to net cash
        provided by operating activities:
        Depreciation                                                 251,826         167,190
        Deferred taxes                                               (91,107)       (223,784)
        Provision for loan losses                                    568,279         347,200
        Loss on sale of other real estate owned                         --             4,538
        Increase in interest receivable                              (90,146)       (403,594)
        Increase (decrease) in interest payable                      (11,345)        227,265
        Net other operating activities                              (297,423)        196,606
                                                                ------------    ------------

          Net cash provided by operating activities                  236,397         865,381
                                                                ------------    ------------

INVESTING ACTIVITIES
    Increase in interest-bearing deposits in banks                (1,285,129)         (7,970)
    Purchase of securities available-for-sale                     (1,500,000)     (2,828,205)
    Proceeds from maturities of securities available-for-sale      3,146,287       1,181,918
    Proceeds from maturities of securities held-to-maturity          999,688       1,506,604
    Purchase of restricted equity securities                        (546,900)           --
    Net increase in federal funds sold                           (12,588,000)       (310,000)
    Net increase in loans                                        (45,724,347)    (27,477,786)
    Purchase of premises and equipment                            (1,679,315)       (829,108)
    Purchase of life insurance policies                             (590,000)           --
    Proceeds from sale of other real estate owned                       --           246,788
                                                                ------------    ------------

              Net cash used in investing activities              (59,767,716)    (28,517,759)

                                                                ------------    ------------

FINANCING ACTIVITIES
    Net increase in deposits                                      41,443,578      30,362,114
    Net proceeds from other borrowings                            12,800,000          50,000
    Proceeds from sale of common stock                             3,750,000            --
                                                                ------------    ------------

              Net cash provided by financing activities           57,993,578      30,412,114
                                                                ------------    ------------

Net increase (decrease) in cash and due from banks                (1,537,741)      2,759,736

Cash and due from banks at beginning of year                       5,017,193       2,257,457
                                                                ------------    ------------

Cash and due from banks at end of year                          $  3,479,452    $  5,017,193
                                                                ============    ============

SUPPLEMENTAL DISCLOSURES Cash paid for:
        Interest                                                $  4,372,013    $  2,597,160

        Income taxes                                            $    288,394    $     47,254

NONCASH TRANSACTIONS
     Principal balance of loans transferred
         to other real estate owned                             $     82,148    $     46,362

     Financed sales of other real estate owned                  $     90,000    $       --

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

See Notes to Consolidated Financial Statements.

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

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Nature of Business

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

          Basis of Presentation

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

          The preparation of financial statements in conformity with generally
          accepted accounting principles requires management to make estimates
          and assumptions that affect the reported amounts of assets and
          liabilities as of the balance sheet date and the reported amounts of
          revenues and expenses during the reporting period. Actual results
          could differ from those estimates. Material estimates that are
          particularly susceptible to significant change in the near term relate
          to the determination of the allowance for loan losses, the valuation
          of foreclosed real estate, and deferred taxes.

          Cash, Due From Bank and Cash Flows

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

          The Company maintains amounts due from banks which, at times, may
          exceed federally insured limits. The Company has not experienced any
          losses in such accounts.

          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.

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

                                      F-7
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         Loans

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

          Nonrefundable loan fees and costs for loans are deferred and
          recognized in income over the life of the loans.

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

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

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

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

          Premises and Equipment

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

          Other Real Estate Owned

          Other real estate owned represents properties acquired through
          foreclosure. Other real estate owned is held for sale and is carried
          at the lower of cost or fair value less estimated costs of disposal.
          Any write-down to fair value at the time of transfer to other real
          estate owned is charged to the allowance for loan losses. Revenue and
          expenses from operations and changes in the valuation allowance are
          included in net expenses from foreclosed assets. The Company had no
          other real estate owned at December 31, 2001 and 2000.

                                      F-8
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         Transfers of Financial Assets

          Transfers of financial assets are accounted for as sales, when control
          over the assets has been surrendered. Control over transferred assets
          is deemed to be surrendered when (1) the assets have been isolated
          from the Company, (2) the transferee obtains the right (free of
          conditions that constrain it from taking advantage of that right) to
          pledge or exchange the transferred assets, and (3) the Company does
          not maintain effective control over the transferred assets through an
          agreement to repurchase them before their maturity.

         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 Options

          Statement of Financial Accounting Standards ("SFAS") No. 123,
          Accounting for Stock-Based Compensation, encourages all entities to
          adopt a fair value based method of accounting for employee stock
          options, whereby compensation cost is measured at the grant date based
          on the value of the award and is recognized over the service period,
          which is usually the vesting period. However, it also allows an entity
          to measure compensation cost for stock options using the intrinsic
          value based method of accounting prescribed by Accounting Principles
          Board Opinion No. 25, Accounting for Stock Issued to Employees,
          whereby compensation cost is the excess, if any, of the market price
          of the stock at the grant date (or other measurement date) over the
          amount an employee must pay to acquire the stock. The Company has
          elected to measure compensation cost in accordance with the accounting
          methodology in Opinion No. 25.

         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.

                                      F-9
<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, 2001:
   U.S. Government and
      agency securities             $  500,000   $      5,469   $      --      $  505,469
                                    ==========   ============   ===========    ==========

   December 31, 2000:
   U.S. Government and
     agency securities              $2,146,287   $      1,798   $    (3,629)   $2,144,456
                                    ==========   ============   ===========    ==========

      Securities Held-to-Maturity
   December 31, 2001:
   U. S. Government and agency
      securities                    $  399,627   $     14,248   $      --      $  413,875
                                    ==========   ============   ===========    ==========

   December 31, 2000:
   U. S. Government and agency
      securities                    $1,399,315   $       --     $    (9,258)   $1,390,057
                                    ==========   ============   ===========    ==========
</TABLE>

          Securities with a carrying value of $399,627 and $399,000 at December
          31, 2001 and 2000 were pledged to secure public deposits and for other
          purposes required or permitted by law.

          The amortized cost and fair value of debt securities as of December
          31, 2001 by contractual maturity are shown below.

                                 Securities            Securities
                             Available-for-Sale     Held-to-Maturity
                             -------------------   -------------------
                            Amortized    Fair     Amortized     Fair
                               Cost      Value       Cost      Value
                             --------   --------   --------   --------

Due from one to five years   $500,000   $505,469   $399,627   $413,875
                             ========   ========   ========   ========

                                      F-10
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3.  LOANS

         The composition of loans is summarized as follows:

                                     December 31,
                             ----------------------------
                                 2001             2000
                             ------------    ------------

Commercial and industrial    $ 26,666,000    $ 16,896,000
Real estate - construction     20,880,000       7,707,000
Real estate - mortgage         51,703,000      33,542,000
Consumer and other             13,567,608       9,014,673
                             ------------    ------------
                              112,816,608      67,159,673
Unearned income                   (70,826)        (93,374)
Allowance for loan losses      (1,252,461)       (736,898)
                             ------------    ------------
Loans, net                   $111,493,321    $ 66,329,401
                             ============    ============

Changes in the allowance for loan losses are as follows:

                                                Years Ended December 31,
                                                -----------------------
                                                   2001         2000
                                                ----------   ----------

Balance, beginning of year                      $  736,898    $ 397,262
   Provision for loan losses                       568,279      347,200
   Loans charged off                               (57,655)      (7,564)
   Recoveries of loans previously charged off        4,939         --
                                                ----------    ---------
Balance, end of year                            $1,252,461    $ 736,898
                                                ==========    =========

          The total recorded investment in impaired loans was $873,620 and $0 at
          December 31, 2001 and 2000, 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, 2001 and 2000. The average recorded investment in
          impaired loans for 2001 and 2000 was $383,376 and $0, respectively.
          Interest income recognized for cash payments received on impaired
          loans was not material for the years ended December 31, 2001 and 2000.

          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, 2001 are as follows:

Balance, beginning           $ 5,693,935
   Advances                    5,296,944
   Repayments                 (4,825,650)
                             -----------


Balance, ending              $ 6,165,229
                             ===========

                                      F-11
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4.  PREMISES AND EQUIPMENT

                  Premises and equipment are summarized as follows:

                                   December 31,
                           --------------------------
                               2001           2000
                           -----------    -----------

Land                       $   750,029    $   732,454
Buildings                    3,366,586      2,129,005
Equipment                    1,546,657      1,122,498
                           -----------    -----------
                             5,663,272      3,983,957
Accumulated depreciation      (604,309)      (352,483)
                           -----------    -----------
                           $ 5,058,963    $ 3,361,474
                           ===========    ===========

         Lease

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

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

         2002                  $ 96,453
         2003                    45,667
                               ---------
                               $142,120
                               =========

          Total rental expense is summarized as follows:

                      Years Ended December 31,
                      ----------------------
                        2001          2000
                      --------      --------

Related party         $ 43,875      $   --
Other third parties     52,325        41,170
                      --------      --------
                      $ 96,200      $ 41,170
                      ========      ========


NOTE 5.  DEPOSITS

          The aggregate amount of time deposits in denominations of $100,000 or
          more at December 31, 2001 and 2000 was $30,812,214 and $18,356,708,
          respectively. The Company had brokered certificates of deposit at
          December 31, 2001 and 2000 of $3,591,704 and $0, respectively. The
          scheduled maturities of time deposits at December 31, 2001 are as
          follows:

                                      F-12
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5.  DEPOSITS (Continued)

                      2002                    $  55,910,067
                      2003                        4,510,287
                      2004                        1,610,871
                      2005                          375,252
                      2006                          761,630
                      Thereafter                     78,321
                                              --------------
                                              $  63,246,428
                                              ==============


NOTE 6.  OTHER BORROWINGS

          Other borrowings consist of the following:

<TABLE>
<CAPTION>
                                                                                 December 31,
                                                                         ---------------------------
                                                                             2001            2000
                                                                         ------------    -----------

<S>                                                                      <C>              <C>
Adjustable rate advance from Federal Home Loan Bank with

   interest payable monthly (interest rate adjusts quarterly, 1.95%
   at December 31, 2001), matures June 20, 2003                          $  8,250,000     $     --
Fixed rate advance from Federal Home Loan Bank with interest
   payable monthly at 2.67%, matures April 3, 2002                          1,000,000           --
Fixed rate advance from Federal Home Loan Bank with interest
   payable monthly at 2.67%, matures October 3, 2002                        1,600,000           --
Fixed rate advance from Federal Home Loan Bank with interest
   payable monthly at 2.99%, matures April 3, 2003                          1,000,000           --
Fixed rate advance from Federal Home Loan Bank with interest
   payable monthly at 3.30%, matures October 3, 2003                        1,000,000           --
Unsecured line of credit with a commercial bank with interest
   payable semi-annually at prime minus .5% (9.00% at
   December 31, 2000), matured June 7, 2001                                     --           50,000
                                                                         ------------     ---------
                                                                         $ 12,850,000     $  50,000
                                                                         ============     =========
</TABLE>

          The advances from the Federal Home Loan Bank are secured by a blanket
          floating lien on the Company's qualifying first mortgage loans and
          Federal Home Loan Bank stock.


NOTE 7.  EMPLOYEE AND DIRECTOR BENEFIT PLANS

         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 $21,941 and $19,165 for the years ended
          December 31, 2001 and 2000, respectively.

                                      F-13
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7.  EMPLOYEE AND DIRECTOR BENEFIT PLANS (Continued)

         Stock Compensation Plans and Agreements

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

          The Company also has 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>
                                                 2001                  2000
                                         -------------------   ---------------------
                                                    Weighted-              Weighted-
                                                     Average                Average
                                                    Exercise                Exercise
                                          Shares      Price     Shares       Price
                                         -------    --------    ------     ---------

<S>                                     <C>          <C>         <C>          <C>
Under option, beginning of year           20,000     $ 4.89      10,000       4.75$
   Granted                               239,000       8.11      10,000       5.03
   Exercised                                --          --         --           --
   Cancelled                                --          --         --           --
                                         -------                 ------
Under option, end of year                259,000       7.86      20,000       4.89
                                         =======                 ======

Exercisable, end of year                 216,000       7.69      20,000       4.89
                                         =======                 ======
Weighted-average fair value of options
   granted during the year               $  3.44                 $ 4.35
</TABLE>

          Information pertaining to options outstanding at December 31, 2001 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>             <C>
 $4.75 - $5.82             22,000           9 years        $  4.97          22,000         $  4.97
 $8.00 - $10.00           237,000          10 years           8.13         194,000            8.00
                          -------                                          -------
                          259,000          10 years           7.86         216,000            7.69
                          =======                                          =======
</TABLE>

                                      F-14
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7.  EMPLOYEE AND DIRECTOR BENEFIT PLANS (Continued)

         Stock Compensation Plans and Agreements (Continued)

          The Company applies Opinion 25 and related Interpretations in
          accounting for the stock options. Under the employee agreements, the
          Company recognized compensation costs of $29,460 and $21,100 for the
          difference between the grant price of the options earned and the fair
          value of the common stock for the years ended December 31, 2001 and
          2000, respectively. Under the employee and director stock option
          plans, the Company recognized no compensation costs. Had compensation
          cost for the stock options been determined based on the fair value of
          the awards consistent with the method prescribed by FASB Statement No.
          123, net income (loss) and earnings (losses) per share would have been
          adjusted to the pro forma amounts indicated below.

<TABLE>
<CAPTION>
                                                                      Years Ended December 31,
                                                                     --------------------------
                                                                         2001           2000
                                                                     -----------      ---------

<S>                                          <C>                     <C>              <C>
   Net income (loss)                         As reported             $  (93,687)      $ 549,960
                                             Pro forma               $ (494,716)      $ 508,936

   Earnings (losses) per share               As reported             $    (0.05)      $    0.29
                                             Pro forma               $    (0.26)      $    0.27

   Earnings (losses) per share -             As reported             $    (0.05)      $    0.29
     assuming dilution                       Pro forma               $    (0.26)      $    0.27
</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,
                                                                    -----------------------------
                                                                      2001                2000
                                                                    ---------           ---------

<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%                  0%
 Risk-free interest rate                                                5.59%               6.23%
</TABLE>

         Deferred Compensation Plan

          In 2001, the Company established a deferred compensation plan
          providing for death and retirement benefits for its chief executive
          officer. The estimated amounts to be paid under the compensation plan
          are being funded through the purchase of life insurance policies on
          the executive officer. The balance of the policy cash surrender values
          included in other assets at December 31, 2001 is $598,361. Income
          recognized on the policies amounted to $8,361 for the year ended
          December 31, 2001. The deferred compensation liability and expense
          recognized was $10,740 as of and for the year ended December 31, 2001.

                                      F-15
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8.  INCOME TAXES

          Income tax expense consists of the following:

                                              Years Ended December 31,
                                           -----------------------------
                                               2001             2000
                                           -------------    ------------

    Current                                $     8,165      $    233,634
    Deferred                                   (91,107)          (55,328)
    Change in valuation allowance                  -            (168,456)
                                           -------------    -------------
         Income tax expense (benefit)      $   (82,942)     $      9,850
                                           =============    ==============

          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:

<TABLE>
<CAPTION>
                                                      Years Ended December 31,
                                    ------------------------------------------------------
                                              2001                          2000
                                    --------------------------   -------------------------
                                       Amount       Percent         Amount        Percent
                                    -------------  -----------   -------------   ---------

<S>                                 <C>            <C>           <C>             <C>
Income taxes at statutory rate      $   (60,054)      (34) %     $   190,336        34  %
Change in valuation allowance               -         -             (168,456)      (30)
Tax-free interest on loans               (3,506)       (2)              (790)       -
Surtax exemption                        (16,026)       (9)                -         -
State income tax (benefit)               (9,709)       (6)           (13,879)       (2)
Other items                               6,353         4              2,639        -
                                    -------------  -----------   -------------   ---------
     Income tax expense (benefit)   $   (82,942)      (47) %     $     9,850         2  %
                                    =============  ===========   =============   =========
</TABLE>

          The components of deferred income taxes are as follows:

                                                        December 31,
                                                -----------------------------
                                                    2001            2000
                                                -------------   -------------
Deferred tax assets:
   Loan loss reserves                           $    331,345    $    174,244
   Deferred loan fees                                 26,727          34,220
   Preopening and organization costs                  50,786          83,887
   Stock options                                      19,079           7,962
   Deferred compensation                               1,223             -
   Other                                               2,676             -
   Securities available-for-sale                         -               696
                                                -------------   -------------
                                                     431,836         301,009
                                                -------------   -------------
Deferred tax liabilities:
   Depreciation                                      109,705          69,289
   Securities available-for-sale                       2,078             -
                                                -------------   -------------
                                                     111,783          69,289
                                                -------------   -------------

          Net deferred tax assets               $    320,053    $    231,720
                                                =============   =============

                                      F-16
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9.  EARNINGS (LOSSES) PER SHARE

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

<TABLE>
<CAPTION>
                                                           Years Ended December 31,
                                                        -------------------------------
                                                            2001              2000
                                                        --------------    -------------
<S>                                                    <C>              <C>
Basic Earnings (Losses) Per Share:
   Weighted average common shares outstanding             1,901,027         1,900,000
                                                       ==============   ===============

   Net income (loss)                                   $    (93,687)    $     549,960
                                                       ==============   ===============

   Basic earnings (losses) per share                   $      (0.05)    $        0.29
                                                       ==============   ===============

Diluted Earnings (Losses) Per Share:
   Weighted average common shares outstanding             1,901,027         1,900,000
   Net effect of the assumed exercise of stock
      options based on the treasury stock method
      using average market prices for the year                  -               6,607
                                                       --------------   ---------------
   Total weighted average common shares and
      common stock equivalents outstanding                1,901,027         1,906,607
                                                       ==============   ===============

   Net income (loss)                                   $    (93,687)    $     549,960
                                                       ==============   ===============

   Diluted earnings (losses) per share                 $      (0.05)    $        0.29
                                                       ==============   ===============
</TABLE>

NOTE 10. COMMITMENTS AND CONTINGENCIES

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

          The Company's exposure to credit loss in the event of nonperformance
          by the other party to the financial instrument for commitments to
          extend credit and standby letters of credit is represented by the
          contractual amount of those instruments. The Company uses the same
          credit policies in making commitments and conditional obligations as
          it does for on-balance sheet instruments. A summary of the Company's
          commitments is as follows:

                                                          December 31,
                                              ---------------------------------
                                                    2001              2000
                                              ---------------   ---------------

 Commitments to extend credit                 $   25,572,000    $   11,264,000
 Credit card commitments                             329,000           219,000
                                              ---------------   ---------------
                                              $   25,901,000    $   11,483,000
                                              ===============   ===============
                                      F-17

<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10. COMMITMENTS AND CONTINGENCIES (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. 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 customer.

         Credit card commitments are granted on an unsecured basis.

          Standby letters of credit are conditional commitments issued by the
          Company to guarantee the performance of a customer to a third party.
          Those letters of credit are primarily issued to support public and
          private borrowing arrangements. The credit risk involved in issuing
          letters of credit is essentially the same as that involved in
          extending loans to customers. Collateral is required in instances
          which the Company deems necessary. There were no outstanding letters
          of credit at December 31, 2001 or 2000.

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

NOTE 11. 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.

          Sixty-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 $3,291,000.

NOTE 12. 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, 2001, no dividends could be paid without regulatory approval.

          The Company and the Bank are subject to various regulatory capital
          requirements administered by the federal banking agencies. Failure to
          meet minimum capital requirements can initiate certain mandatory, and
          possibly additional discretionary actions by regulators that, if
          undertaken, could have a direct material effect on the financial
          statements. Under capital adequacy guidelines and the regulatory
          framework for prompt corrective action, the Company and the Bank must
          meet specific capital guidelines that involve quantitative measures of
          the assets, liabilities, and certain off-balance sheet items as
          calculated under regulatory accounting practices. The capital amounts
          and classification are also subject to qualitative judgments by the
          regulators about components, risk weightings, and other factors.
          Prompt corrective provisions are not applicable to bank holding
          companies.

                                      F-18
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12. Regulatory Matters (Continued)

          Quantitative measures established by regulation to ensure capital
          adequacy require 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, 2001 and
          2000, the Company and the Bank met all capital adequacy requirements
          to which they are subject.

          As of December 31, 2001, the most recent notification from the 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.

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

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

December 31, 2000:
Total Capital to Risk Weighted Assets
   Consolidated                         $  10,323      15.05%    $  5,488        8%    $    N/A       N/A
   Bank                                 $  10,374      15.13%    $  5,486        8%    $  6,857       10%
Tier I Capital to Risk Weighted Assets
   Consolidated                         $   9,586      13.97%    $  2,744        4%    $    N/A       N/A
   Bank                                 $   9,637      14.06%    $  2,743        4%    $  4,114        6%
Tier I Capital to Average Assets
   Consolidated                         $   9,586      11.97%    $  3,205        4%    $    N/A       N/A
   Bank                                 $   9,637      12.03%    $  3,205        4%    $  4,006        5%
</TABLE>

NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

                                      F-19
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

         Cash, Due From Banks, Interest-Bearing Deposits in Banks and Federal
         Funds Sold:

         The carrying amounts of cash, due from banks, interest-bearing
         deposits in banks and federal funds sold approximate fair values.

         Securities:

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

         Loans:

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

         Deposits:

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

         Other Borrowings:

          The carrying amounts of other borrowings approximate their fair
          values.

         Accrued Interest:

          The carrying amounts of accrued interest approximate their fair
          values.

         Off-Balance Sheet Instruments:

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

                                      F-20
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13. 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,
                                    ------------------------------------------------------------------
                                                  2001                              2000
                                    ---------------------------------   ------------------------------
                                       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                $   20,097,382    $   20,097,382    $  7,761,994    $   7,761,994
   Securities available-for-sale           505,469           505,469       2,144,456        2,144,456
   Securities held-to-maturity             399,627           413,875       1,399,315        1,390,057
   Restricted equity securities            642,500           642,500          95,600           95,600
   Loans                               111,493,321       112,895,768      66,329,401       66,720,191
   Accrued interest receivable             776,385           776,385         686,239          686,239

Financial liabilities:
   Deposits                            113,621,671       115,307,272      72,178,093       72,334,783
   Other borrowings                     12,850,000        12,850,000          50,000           50,000
   Accrued interest payable                306,460           306,460         317,805          317,805
</TABLE>

NOTE 14. 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-21
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14. SUPPLEMENTAL SEGMENT INFORMATION (Continued)

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

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

NOTE 15. SUPPLEMENTARY FINANCIAL DATA

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

                                              Years Ended December 31,
                                             --------------------------
                                                2001             2000
                                             ----------       ---------
Other income:
   Mortgage loan origination fees            $   64,947       $  86,944
Other expenses:
   Advertising                                  110,258          87,977
   Stationery and supplies                      211,104         138,871
   Data processing                              237,568         138,952
   Legal and professional                       194,601         149,162
   Telephone                                     91,112          49,822

                                      F-22
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16. 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, 2001 and 2000:

                            CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                           2001              2000
                                                                      -------------     --------------

<S>                                                                    <C>           <C>
Assets
  Cash                                                                 $    21,308   $     3,961
  Investment in subsidiaries                                            13,229,374     9,635,885
  Other assets                                                              45,853        30,755
                                                                       -----------   -----------

        Total assets                                                   $13,296,535   $ 9,670,601
                                                                       ===========   ===========

Liabilities
  Other borrowings                                                     $      --     $    50,000
  Other liabilities                                                        113,554        35,465
                                                                       -----------   -----------
        Total liabilities                                                  113,554        85,465
                                                                       -----------   -----------

Stockholders' equity                                                    13,182,981     9,585,136
                                                                       -----------   -----------

        Total liabilities and stockholders' equity                     $13,296,535   $ 9,670,601
                                                                       ===========   ===========
</TABLE>

                       CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                           2001         2000
                                                                       ------------  -----------

<S>                                                                    <C>           <C>
Income, dividends from bank subsidiary                                 $   145,000   $     --
                                                                       ------------  -----------

Expenses:
  Employee benefits                                                         29,460        21,100
  Interest                                                                   1,004         2,355
  Other                                                                     33,991        58,049
                                                                       -----------   ------------
               Total expenses                                               64,455         81,504
                                                                       -----------   ------------

               Income (loss) before income tax benefits and equity
                 in undistributed income (distributions in excess
                 of loss) of subsidiaries                                   80,545       (81,504)

Income tax benefits                                                        (16,805)      (30,755)
                                                                       ------------   -----------

               Income (loss) before equity in undistributed
                 income (distributions in excess of
                 loss) of subsidiaries                                      97,350       (50,749)

Equity in undistributed income (distributions in excess subsidiaries
   of loss) of subsidiaries                                               (191,037)      443,415
                                                                       ------------    ---------

               Net income (loss)                                       $   (93,687     $  392,666
                                                                       ============    =========
</TABLE>

                                      F-23
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16. PARENT COMPANY FINANCIAL INFORMATION (Continued)

                       CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                    2001           2000
                                                                -----------    ------------

<S>                                                             <C>            <C>
OPERATING ACTIVITIES
  Net income (loss)                                             $   (93,687)   $   392,666
  Adjustments to reconcile net income (loss) to
     net cash provided by (used in) operating activities:
     (Undistributed income) distributions in excess
        of loss of subsidiaries                                     191,037       (443,415)
     Net other operating activities                                      (3)         4,710
                                                                -----------    -----------

          Net cash provided by (used in) operating activities        97,347        (46,039)
                                                                -----------    -----------

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

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

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

          Net cash provided by financing activities               3,700,000         50,000
                                                                -----------    -----------

Net increase in cash                                                 17,347          3,961

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

Cash at end of year                                             $    21,308    $     3,961
                                                                ===========    ===========
</TABLE>

NOTE 17. BUSINESS COMBINATION

          On March 31, 2000, the Company acquired all of the outstanding stock
          of the Bank in exchange for 950,000 shares of the Company's common
          stock. The acquisition has been accounted for as a pooling of
          interest. The net income of the Bank prior to the acquisition was
          $157,294 and has been included in the consolidated statement of
          operations.


NOTE 18. STOCK OFFERING

          The Company is offering to sell a minimum of 300,000 and a maximum of
          600,000 shares of its common stock at a price of $10.00 per share. As
          of December 31, 2001, 375,000 shares of common stock have been sold
          and issued.

                                      F-24
<PAGE>
ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
---------------------------------------------------------
         ACCOUNTING AND FINANCIAL DISCLOSURE
         -----------------------------------

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


                                    PART III

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

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

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

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

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

Directors
---------

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

                                       38
<PAGE>
         Marcus Calvin Byrd, Jr., born June 1, 1953, is owner of Byrd's
Mini-Storage and Byrd's U-Haul. His 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 14, 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. Head, born May 22, 1953, is President and majority owner of
Head Distributing Company (wholesale groceries) and is involved as an owner or
director or both in the wholesale lumber and restaurant franchise businesses. He
is a graduate of the University of Georgia. Mr. Head has served as a director of
the Company and the Bank since their inception.

         John Philip Hester, Sr., born January 23, 1953, is the President and
Chief Executive Officer of the Company, 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 Company 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
Scholl. Mr. Hester has served as a director of the Company and the Bank since
their inception.

         Bruce Todd Howard, born March 17, 1967, is President and co-owner of
Coal Mountain Builders Supply. He is a member of the Forsyth 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). Mr. Johnson has served as a
director of the Company and the Bank since their inception.

         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.

                                       39
<PAGE>
         Kim M. Mills, born February 11, 1962, is the principal of Mills Fuel
Service, Inc. He is a member of the Dawson County Rotary Club. Mr. Mills has
served as a director since December 1998.

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

         Russell M. Wallace, born June 3, 1954, whose address is 77 Old River
Road, Dahlonega, Georgia 30533, is a principal of The Wallace Group, LLC, a
private investment company located in Dawsonville, Georgia. He is the former
President and co-owner of Country Cupboard Food Stores, Inc. and past Chairman
of the Georgia Association of Convenience Stores. Mr. Wallace is a member of the
Board of Directors of the National Association of Convenience Stores. He is past
Chairman of the Dawson County Heart Fund Association and the Dawson County
Chamber of Commerce, and he is a member of the Dawson County Chamber of Commerce
Board of Directors. He attended the University of Georgia. Mr. Wallace has
served as Chairman of the Board of Directors of the Company and the Bank 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.

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.

                                       40
<PAGE>
         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).

         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, 2001, 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.

                                       41
<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 excess of $100,000) in the fiscal year ended
December 31, 2001, 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>      <C>
J. Philip Hester, Sr.    2001       $ 143,325        $ 5,972          -              -           42,000        -        $ 25,802 1
CEO, President,          2000       $ 136,500        $ 5,688          -              -           8,000         -        $ 61,633 2
Director                 1999       $ 123,971        $ 5,417          -              -           8,000         -        $ 58,264 3
</TABLE>

--------
1  The Company has accrued a deferred compensation expense under the defined
contribution plan totaling $10,740, 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.

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

3  The Bank has accrued a bonus totaling $51,755 and an automobile allowance
totaling $2,938, and contributed to its 401(k) plan for eligible employees
$3,571 for Mr. Hester during the fiscal year ended December 31, 1999.

                                       42
<PAGE>


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

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

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

<S>                          <C>                                    <C>                    <C>            <C>
J. Philip Hester, Sr.        42,000                                 18.92%                 $8.00          4/17/11
</TABLE>

                                       43
<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, 2001. The options are granted at an exercise price
of $8.00 per share and can be exercised at any time prior to October 17, 2010.
No director has as yet exercised his option. In addition, each director will be
granted as of the first business day of each calendar year beginning January 1,
2002 an option to purchase an additional 1,000 shares of our common stock at an
exercise price of no less than the average market price of the common stock on
the date of the grant and exercisable within 10 years from the date of the
grant.

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

         J. Philip Hester, Sr., President and Chief Executive Officer, as well
as a director, of the Company, the Bank, Chestatee Financial and Chestatee
Mortgage, entered into an Amended and Restated Employment Agreement with the
Bank effective September 17, 2001 for a term ending December 31, 2004, with
automatic renewals of one year each absent termination for death, disability,
cause, termination without cause or voluntary resignation. Mr. Hester's base
salary from the effective date is $143,325, increasing 5% annually beginning
January 1, 2002. In addition to the base salary, Mr. Hester will receive a
performance bonus not to exceed 40% of his base salary (i) through the end of
the current year based upon the Bank's CAMEL rating and the evaluation by the
Board of Directors of the Bank's "current" condition at the end of each calendar
year and (ii) beginning January 1, 2002 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. Mr. Hester will receive a
bonus for any fiscal year in which

                                       44
<PAGE>
the Bank receives a CAMEL 3, 4 or 5 rating at the most recent examination only
if the Bank receives a CAMEL 1 or 2 rating at the first examination in the next
calendar year. The Board of Directors approved retirement benefits for Mr.
Hester funded through the purchase of life insurance policies on his life. The
balance of the policy cash surrender values included in other assets at December
31, 2001 is $598,361 and the income recognized on the policies amounted to
$8,361 for the year ended December 31, 2001. The deferred compensation liability
and expense recognized was $10,740 at and for the year ended December 31, 2001.
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, 2000, 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 $16,880 was recorded for the year ended December 31, 2000 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
$4.35.

         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

                                       45
<PAGE>
the event that any outstanding option for any reason expires or is canceled or
otherwise terminated, the shares allocable to the unexercised portion of such
option shall again be available for the purposes of the Employee Plan. Shares
issued under the Employee Plan that are reacquired by us pursuant to any
forfeiture provision, right of repurchase or right of first refusal, will again
generally be available for the purposes of the Employee Plan. Other than the
42,000 shares under the Employee Plan granted to Mr. Hester, no other named
executive officer has been granted options under the plan for the year ended
December 31, 2001.


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

         The following table sets forth certain information with respect to the
beneficial ownership as of February 28, 2002, of shares of our common stock by
the following persons:

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

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


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

Ralph Millard Bowen                     126,196 1                    5.11%
430 Fairmont Drive
Norcross, Georgia  33071

Marcus C. Byrd, Jr.                     132,922 2                    5.38%
1661 Highway 9 South
Dawsonville, Georgia  30534

Glennon C. Grogan                        76,126 3                    3.08%
6060 Jewell Bennett Road
Dawsonville, Georgia  30534

----------
1   Includes 15,000 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 daughters, and 2,000 shares owned each by Mr. Bowen's three sons and
another daughter, for which he disclaims beneficial ownership

2   Includes 15,000 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, and 2,200 shares owned each by his son and
daughter, for which he disclaims beneficial ownership.

3   Includes 15,000 shares available upon exercise of his options but excludes
2,000 shares owned jointly by Mr. Grogan's spouse and son, and 2,000 shares
owned jointly by Mr. Grogan's spouse and daughter, for which he disclaims
beneficial ownership.

                                       46
<PAGE>
Name and Address                  Amount and Nature of              Percent of
of Beneficial Owner               Beneficial Ownership              Class
--------------------              --------------------              ----------

James H. Grogan                         76,206 4                   3.09%
4215 Dahlonega Highway
Cumming, Georgia  30130

Andrew M. Head                         116,446 5                     4.71%
5270 Woodridge Forest Trail
Atlanta, Georgia  30327

J. Philip Hester, Sr.                   50,830 6                     2.06%
32 Lakeshore Circle
Dawsonville, Georgia  30534

Bruce T. Howard                         72,092 7                     2.92%
4975 Bagley Terrace Drive
Alpharetta, Georgia  30201

David E. Johnson                        106,446 8                    4.31%
6775 Polo Drive
Cumming, Georgia  30130

William A. McRae                        91,446 9                     3.70%
499 Johnson Ferry Road
Atlanta, Georgia  30328

Kim Mills                               36,446 10                    1.48%
5015 Oak Grove Circle
Cumming, Georgia 30041

James W. Walden                         86,196 11                    3.49%
262 Jack Walker Road
Dahlonega, Georgia  30533

----------
4   Includes 15,000 shares available upon exercise of his options but excludes
3,000 shares owned by Mr. Grogan's spouse for which Mr. Grogan disclaims
beneficial ownership.

5   Includes 15,000 shares available upon exercise of his options but excludes
2,000 shares owned by Mr. Head's spouse, 200 shares owned by his son and 200
shares owned each by his two daughters, for which Mr. Head disclaims beneficial
ownership.

6   Includes 30,000 shares available upon exercise of his options as well as
20,830 shares held in an individual retirement account for his benefit.

7   Includes 15,000 shares available upon exercise of his options as well as
7,092 shares held by an affiliate, Byrd Howard Properties.

8   Includes 15,000 shares available upon exercise of his options.

9   Includes 15,000 shares available upon exercise of his options as well as
5,000 shares held in the McRae and Stolz Money Purchase Pension Plan.

11  Includes 15,000 shares available upon exercise of his options but excludes
1,000 shares owned each by Ms. Mills' two daughters, for which Ms. Mills
disclaims beneficial ownership.

11  Includes 15,000 shares available upon exercise of his options but excludes
200 shares owned by Mr. Walden's daughter, for which he disclaims beneficial
ownership.

                                       47
<PAGE>
Name and Address                      Amount and Nature of           Percent of
of Beneficial Owner                   BeneficialOwnership            Class
--------------------                  -------------------            ----------

Russell M. Wallace                         152,196 12                  6.16%
77 Old River Road
Dahlonega, Georgia  30533

All executives officers and directors    1,123,548                    45.49%
as a group

         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, 2001, 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.

         As of December 31, 2001, we had outstanding loans to certain of our
directors, executive officers and relatives of such persons and their
associates, which aggregated approximately $6,165,000. This represented
approximately 47% of our $13,183,000 equity capital accounts. The Company
entered into a lease agreement for the lease of facilities for the Bank with BDR
Enterprises, Inc., an entity owned by Mr. Wallace, in November 2000. The lease
payments total approximately $46,000 annually. That lease expires in February
2002 and will not be renewed. The Bank has also entered an agreement for the
lease of facilities adjacent to the Bank with CSB Partners, LLP, an entity owned
by all of our directors. The lease payments total approximately $40,500
annually. The initial term expires in December 2003. We have not otherwise
transacted within the previous two years, nor do we expect to transact in the
immediate future, any business with any director, principal officer, or
principal shareholder which exceeds 10% of our equity capital accounts or $5
million, whichever is less.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

----------
12  Includes 15,000 shares available upon exercise of his options as well as
4,000 shares held in trust by Mr. Wallace in his individual retirement account.
The figure excludes 3,200 shares held by Mr. Wallace's spouse, 2,000 shares
owned by Mr. Wallace's daughter and 2,000 shares owned by Mr. Wallace's son for
which Mr. Wallace disclaims beneficial ownership.

                                       48
<PAGE>
                                    PART IV
                                    -------

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

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

Number        Description
------        -----------

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


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

3.1           Articles of Incorporation of Chestatee Bancshares, Inc. (1)
3.2           Bylaws of Chestatee Bancshares, Inc. (1)
10.1          Lease Agreement between Ingles Markets, Inc. and Chestatee State
              Bank, dated April 16, 1998 (2)
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)

                                       49
<PAGE>
10.5          Lease Agreement between BDR Properties, LLC and Chestatee State
              Bank, dated November 1, 2000 (2)
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.
10.11         Securities Brokerage Agreement between Chestatee Financial, Inc.
              and Agreement with MML Investors Services, Inc.
10.12         Career Agency System Banking Contract between Chestatee
              Bancshares, Inc., Stephen Squires, and the Massachusetts Mutual
              Life Insurance Company
10.13         Subscription Agreement between Chestatee Residential Mortgage,
              Inc. and Guaranty Mortgage Services, LLC, Guaranty First Mortgage,
              LLC and Shelter Mortgage Corporation
10.14         Operating Agreement between Chestatee Residential Mortgage, Inc.
              and Guaranty Mortgage Services, LLC, Guaranty First Mortgage, LLC
              and Shelter Mortgage Corporation
10.15         Lease between Chestatee State Bank and Norman Adams dated July 12,
              2001
10.16         Lease Agreement between Chestatee State Bank and CSB Partners, LLP
              dated January 1, 2001
11            Statement re: Computation of Per Share Earnings
21            Subsidiaries of the Registrant(3)
23.1          Consent of Mauldin & Jenkins, LLC
24.1          Power of Attorney dated March 29, 2002 executed by officers and a
              majority of directors of Chestatee State Bank

(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.


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

         There was no Form 8-K filings during the last quarter of the year ended
December 31, 2001.

                                       50
<PAGE>
                                   SIGNATURES


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


                            CHESTATEE STATE BANK


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

                            DATE:    March 29, 2002


                            BY:  /s/ Robert W. Coile
                                 ----------------------------------------------
                                 Robert W. Coile, Chief Financial Officer

                            DATE:    March 29, 2002


         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 29, 2002



--------------------------------------
Ralph Millard Bowen
Director
March 29, 2002



/s/ Marcus C. Byrd, Jr.
---------------------------------------
Marcus C. Byrd, Jr.
Director
March 29, 2002



/s/ Glennon C. Grogan
---------------------------------------
Glennon C. Grogan
Director
March 29, 2002

                                       51
<PAGE>
/s/ James H. Grogan
----------------------------------------
James H. Grogan
Secretary and Director
March 29, 2002


/s/ Robert W. Coile
----------------------------------------
Robert W. Coile
Chief Financial Officer (principal
accounting officer)
March 29, 2002


/s/ Andrew M. Head
----------------------------------------
Andrew M. Head
Director
March 29, 2002


/s/ Bruce T. Howard
----------------------------------------
Bruce T. Howard
Director
March 29, 2002


/s/ David E. Johnson
----------------------------------------
David E. Johnson
Director
March 29, 2002



----------------------------------------
William A. McRae
Director
March 29, 2002



/s/ Kim Mills
----------------------------------------
Kim Mills
Director
March 29, 2002



/s/ Russell M. Wallace
----------------------------------------
Russell M. Wallace
Chairman of the Board of Directors
March 29, 2002


/s/ James W. Walden
----------------------------------------
James W. Walden
Director
March 29, 2002

                                       52
<PAGE>