##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-QSB

|         |  |                                                                                         
|-------- |  | ----------------------------------------------------------------------------------------
|Mark One |  |                                                                                         
|         |  |                                                                                         
|x        |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|         |  |                                                                                         
|         |  | For the quarterly period ended June 30, 2002                                            
|         |  |                                                                                         
|o        |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|         |  |                                                                                         
|         |  | For the transition period from  to                                                      

Commission File Number: 333-10909

Forsyth Bancshares, Inc.




(Exact name of small business issuer as specified in its charter)


|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Georgia                                                        |  | 58-2231953                       
|                                                               |  |                                  
|(State or other jurisdiction of
incorporation or organization) |  | (IRS Employer
Identification No.)

501 Tri-County Plaza, Highways 9 and 20, Cumming, Georgia 30040




(Address of principal executive offices)


(770) 886-9500




(Issuers telephone number)


N/A




(Former name, former address and former fiscal year, if changed since last report)


Check whether the issuer (1) filed all reports required 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 o


State the number of shares outstanding of each of the issuers classes of
common equity, as of
August 1, 2002:     800,000; no par value.

Transitional Small Business Disclosure Format Yes o     No x





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TABLE OF CONTENTS



|                                         |                                                                                               |                                                            |  |  |  |  |  | 
|---------------------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------------- |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION          
|                                         | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                                         |                                                                                               | CONSOLIDATED BALANCE SHEET                                
|                                         |                                                                                               | CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
|                                         |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS                     
|                                         |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                
|                                         | ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|PART II  OTHER INFORMATION             
|                                         | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.                                 
|PART II  OTHER INFORMATION             
|                                         | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (Continued)                      
|                                         | ITEM 5. OTHER INFORMATION                                                                    
|                                         | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                              
|CERTIFICATION OF CHIEF EXECUTIVE OFFICER
|CERTIFICATION OF CHIEF FINANCIAL OFFICER



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##### Table of Contents



FORSYTH BANCSHARES, INC. AND SUBSIDIARYINDEX

|         |  |                       |  |                                                                                               |                                                                                                                                                    |  |       |   | 
|-------- |  | --------------------- |  | --------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----- | - | 
|         |  |                       |  |                                                                                               |                                                                                                                                                    |  | Page 
|         |  |                       |  |                                                                                               |                                                                                                                                                    |  |      
|PART I.  |  | FINANCIAL INFORMATION |  |                                                                                               |                                                                                                                                                    | 
|         |  |                      
|         |  |                       |  | Item 1. Financial Statements                                                                  |                                                                                                                                                    |  |       |  
|         |  |                      
|         |  |                       |  |                                                                                               | Consolidated Balance Sheet  June 30, 2002                                                                                                         |  |       | 3 | 
|         |  |                      
|         |  |                       |  |                                                                                               | Consolidated Statements of Income and Comprehensive
Income  Three Months Ended June 30, 2002 and 2001
and Six Months Ended June 30, 2002 and 2001 |  |       | 4 | 
|         |  |                      
|         |  |                       |  |                                                                                               | Consolidated Statement of Cash Flows  Six
Months Ended June 30, 2002 and 2001                                                                     |  |       | 5 | 
|         |  |                      
|         |  |                       |  |                                                                                               | Notes to Consolidated Financial Statements                                                                                                         |  |       | 6 | 
|         |  |                      
|         |  |                       |  | Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations |                                                                                                                                                    |  | 7     |  
|         |  |                      
|PART II. |  | OTHER INFORMATION     |  |                                                                                               |                                                                                                                                                    | 
|         |  |                      
|         |  |                       |  | Item 4 - Submission of Matters to a Vote of Security Holders                                  |                                                                                                                                                    |  | 14-15 |  
|         |  |                      
|         |  |                       |  | Item 5 - Other Information                                                                    |                                                                                                                                                    |  | 15    |  
|         |  |                      
|         |  |                       |  | Item 6 - Exhibits and Reports on Form 8-K                                                     |                                                                                                                                                    |  | 15    |  
|         |  |                      
|         |  |                       |  | Signatures                                                                                    |                                                                                                                                                    |  | 16    |  





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##### Table of Contents






PART I  FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS

FORSYTH BANCSHARES, INC. AND SUBSIDIARY




CONSOLIDATED BALANCE SHEET

JUNE 30, 2002


(Unaudited)


(Dollars in Thousands)


|                                                |                                                                                                 |                                            |                                      |        |        |  |  | 
|----------------------------------------------- | ----------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------------------ | ------ | ------ |  |  | 
|                                                |                                                                                                 |                                            |                                      | Assets |        |  |  | 
|                                                |                                                                                                 |                                            |                                      |       
|Cash and due from banks                         |                                                                                                 | $                                          | 1,855                                |       
|Interest-bearing deposits in banks              |                                                                                                 |                                            | 209                                  |       
|Federal funds sold                              |                                                                                                 |                                            | 4,928                                |       
|Securities available-for-sale, at fair value    |                                                                                                 |                                            | 18,800                               |       
|Securities held-to-maturity, fair value of $154 |                                                                                                 |                                            | 150                                  |       
|Restricted equity securities                    |                                                                                                 |                                            | 206                                  |       
|                                                |                                                                                                 |                                            |                                      |       
|Loans                                           |                                                                                                 |                                            | 63,696                               |       
|Less allowance for loan losses                  |                                                                                                 |                                            | 820                                  |       
|                                                |                                                                                                 |                                            |                                      |       
|                                                |                                                                                                 | Loans, net                                 |                                      |        | 62,876 | 
|                                                |                                                                                                 |                                            |                                      |       
|                                                |                                                                                                 |                                            |                                      |       
|Premises and equipment                          |                                                                                                 |                                            | 3,754                                |       
|Other assets                                    |                                                                                                 |                                            | 808                                  |       
|                                                |                                                                                                 |                                            |                                      |       
|                                                |                                                                                                 |                                            |                                      |       
|                                                |                                                                                                 | Total assets                               |                                      | $      | 93,586 | 
|                                                |                                                                                                 |                                            |                                      |       
|                                                |                                                                                                 |                                            |                                      |       
|                                                |                                                                                                 |                                            | Liabilities and Stockholders Equity |        |        |  | 
|                                                |                                                                                                 |                                            |                                      |       
|Deposits                                        |                                                                                                 |                                            |                                      |       
|                                                | Noninterest-bearing                                                                             |                                            | $                                    | 10,417 |       
|                                                | Interest-bearing                                                                                |                                            |                                      | 72,917 |       
|                                                |                                                                                                 |                                            |                                      |       
|                                                |                                                                                                 | Total deposits                             |                                      |        | 83,334 | 
|Securities sold under repurchase agreements     |                                                                                                 |                                            | 9                                    |       
|Other liabilities                               |                                                                                                 |                                            | 411                                  |       
|                                                |                                                                                                 |                                            |                                      |       
|                                                |                                                                                                 | Total liabilities                          |                                      |        | 83,754 | 
|                                                |                                                                                                 |                                            |                                      |       
|                                                |                                                                                                 |                                            |                                      |       
|Commitments and contingencies                   |                                                                                                 |                                            |                                      |       
|                                                |                                                                                                 |                                            |                                      |       
|Stockholders equity                            |                                                                                                 |                                            |                                      |       
|                                                | Common stock; no par value; 10,000,000 shares
shares authorized, 800,000 issued and outstanding |                                            |                                      | 7,960  |       
|                                                | Retained earnings                                                                               |                                            |                                      | 1,639  |       
|                                                | Accumulated other comprehensive income                                                          |                                            |                                      | 233    |       
|                                                |                                                                                                 |                                            |                                      |       
|                                                |                                                                                                 | Total stockholders equity                 |                                      |        | 9,832  | 
|                                                |                                                                                                 |                                            |                                      |       
|                                                |                                                                                                 |                                            |                                      |       
|                                                |                                                                                                 | Total liabilities and stockholders equity |                                      | $      | 93,586 | 
|                                                |                                                                                                 |                                            |                                      |       

See Notes to Consolidated Financial Statements.

3



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FORSYTH BANCSHARES, INC. AND SUBSIDIARY




CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME

THREE MONTHS ENDED JUNE 30, 2002 AND 2001


AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001


(Unaudited)


(Dollars in Thousands,


Except Per Share Data)


|                                       |                                                                          |                                                     |      |       |                    |   |                  |       |       |   |      |       |       |   |      |       |       |  | 
|-------------------------------------- | ------------------------------------------------------------------------ | --------------------------------------------------- | ---- | ----- | ------------------ | - | ---------------- | ----- | ----- | - | ---- | ----- | ----- | - | ---- | ----- | ----- |  | 
|                                       |                                                                          |                                                     |      |       | Three Months Ended |   | Six Months Ended
|                                       |                                                                          |                                                     |      |       | June 30            |   | June 30         
|                                       |                                                                          |                                                     |      |       |                    |   |                 
|                                       |                                                                          |                                                     |      |       | 2002               |   | 2001             |       | 2002  |   | 2001
|                                       |                                                                          |                                                     |      |       |                    |   |                  |       |       |   |     
|Interest income                        |                                                                          |                                                     |      |       |                    |   |                  |       |       |   |      |       |       |   |      |      
|                                       | Loans                                                                    |                                                     | $    | 1,184 |                    |   | $                | 1,262 |       |   | $    | 2,350 |       |   | $    | 2,512 |      
|                                       | Taxable securities                                                       |                                                     |      | 230   |                    |   |                  | 309   |       |   |      | 456   |       |   |      | 620   |      
|                                       | Nontaxable securities                                                    |                                                     |      | 14    |                    |   |                  | 21    |       |   |      | 29    |       |   |      | 41    |      
|                                       | Deposits in banks                                                        |                                                     |      | 3     |                    |   |                  | 5     |       |   |      | 6     |       |   |      | 10    |      
|                                       | Federal funds sold                                                       |                                                     |      | 18    |                    |   |                  | 57    |       |   |      | 41    |       |   |      | 139   |      
|                                       |                                                                          |                                                     |      |       |                    |   |                  |       |       |   |      |       |       |   |      |      
|                                       |                                                                          | Total interest income                               |      |       | 1,449              |   |                  |       | 1,654 |   |      |       | 2,882 |   |      |       | 3,322 | 
|                                       |                                                                          |                                                     |      |       |                    |   |                  |       |       |   |      |       |       |   |      |      
|                                       |                                                                          |                                                     |      |       |                    |   |                  |       |       |   |      |       |       |   |      |      
|Interest expense                       |                                                                          |                                                     |      |       |                    |   |                  |       |       |   |      |       |       |   |      |      
|                                       | Deposits                                                                 |                                                     |      | 522   |                    |   |                  | 904   |       |   |      | 1,076 |       |   |      | 1,843 |      
|                                       | Other borrowings                                                         |                                                     |      |      |                    |   |                  |      |       |   |      | 1     |       |   |      |      |      
|                                       |                                                                          |                                                     |      |       |                    |   |                  |       |       |   |      |       |       |   |      |      
|                                       |                                                                          | Total interest expense                              |      |       | 522                |   |                  |       | 904   |   |      |       | 1,077 |   |      |       | 1,843 | 
|                                       |                                                                          |                                                     |      |       |                    |   |                  |       |       |   |      |       |       |   |      |      
|                                       |                                                                          |                                                     |      |       |                    |   |                  |       |       |   |      |       |       |   |      |      
|                                       |                                                                          | Net interest income                                 |      |       | 927                |   |                  |       | 750   |   |      |       | 1,805 |   |      |       | 1,479 | 
|Provision for loan losses              |                                                                          |                                                     | 50   |       |                    |   | 67               |       |       |   | 90   |       |       |   | 123  |      
|                                       |                                                                          |                                                     |      |       |                    |   |                  |       |       |   |      |       |       |   |      |      
|                                       |                                                                          | Net
interest income after provision for loan losses |      |       | 877                |   |                  |       | 683   |   |      |       | 1,715 |   |      |       | 1,356 | 
|                                       |                                                                          |                                                     |      |       |                    |   |                  |       |       |   |      |       |       |   |      |      
|                                       |                                                                          |                                                     |      |       |                    |   |                  |       |       |   |      |       |       |   |      |      
|Other income                           |                                                                          |                                                     |      |       |                    |   |                  |       |       |   |      |       |       |   |      |      
|                                       | Service charges on deposit accounts                                      |                                                     |      | 62    |                    |   |                  | 50    |       |   |      | 127   |       |   |      | 101   |      
|                                       | Gains on sales of securities available-for-sale                          |                                                     |      |      |                    |   |                  | 3     |       |   |      | 5     |       |   |      | 6     |      
|                                       | Other operating income                                                   |                                                     |      | 137   |                    |   |                  | 19    |       |   |      | 307   |       |   |      | 36    |      
|                                       |                                                                          |                                                     |      |       |                    |   |                  |       |       |   |      |       |       |   |      |      
|                                       |                                                                          | Total other income                                  |      |       | 199                |   |                  |       | 72    |   |      |       | 439   |   |      |       | 143   | 
|                                       |                                                                          |                                                     |      |       |                    |   |                  |       |       |   |      |       |       |   |      |      
|                                       |                                                                          |                                                     |      |       |                    |   |                  |       |       |   |      |       |       |   |      |      
|Other expenses                         |                                                                          |                                                     |      |       |                    |   |                  |       |       |   |      |       |       |   |      |      
|                                       | Salaries and other employee benefits                                     |                                                     |      | 454   |                    |   |                  | 351   |       |   |      | 932   |       |   |      | 686   |      
|                                       | Occupancy and equipment expenses                                         |                                                     |      | 121   |                    |   |                  | 117   |       |   |      | 245   |       |   |      | 231   |      
|                                       | Other operating expenses                                                 |                                                     |      | 260   |                    |   |                  | 250   |       |   |      | 506   |       |   |      | 447   |      
|                                       |                                                                          |                                                     |      |       |                    |   |                  |       |       |   |      |       |       |   |      |      
|                                       |                                                                          | Total other expenses                                |      |       | 835                |   |                  |       | 718   |   |      |       | 1,683 |   |      |       | 1,364 | 
|                                       |                                                                          |                                                     |      |       |                    |   |                  |       |       |   |      |       |       |   |      |      
|                                       |                                                                          |                                                     |      |       |                    |   |                  |       |       |   |      |       |       |   |      |      
|                                       |                                                                          | Income before income taxes                          |      |       | 241                |   |                  |       | 37    |   |      |       | 471   |   |      |       | 135   | 
|Income tax expense                     |                                                                          |                                                     | 81   |       |                    |   | 11               |       |       |   | 159  |       |       |   | 44   |      
|                                       |                                                                          |                                                     |      |       |                    |   |                  |       |       |   |      |       |       |   |      |      
|                                       |                                                                          | Net income                                          |      |       | 160                |   |                  |       | 26    |   |      |       | 312   |   |      |       | 91    | 
|                                       |                                                                          |                                                     |      |       |                    |   |                  |       |       |   |      |       |       |   |      |      
|                                       |                                                                          |                                                     |      |       |                    |   |                  |       |       |   |      |       |       |   |      |      
|Other comprehensive income, net of tax |                                                                          |                                                     |      |       |                    |   |                  |       |       |   |      |       |       |   |      |      
|                                       | Unrealized gains on securities available-for- sale
arising during period |                                                     |      | 179   |                    |   |                  | 25    |       |   |      | 69    |       |   |      | 224   |      
|                                       |                                                                          |                                                     |      |       |                    |   |                  |       |       |   |      |       |       |   |      |      
|                                       |                                                                          |                                                     |      |       |                    |   |                  |       |       |   |      |       |       |   |      |      
|                                       |                                                                          | Comprehensive income                                |      | $     | 339                |   |                  | $     | 51    |   |      | $     | 381   |   |      | $     | 315   | 
|                                       |                                                                          |                                                     |      |       |                    |   |                  |       |       |   |      |       |       |   |      |      
|                                       |                                                                          |                                                     |      |       |                    |   |                  |       |       |   |      |       |       |   |      |      
|Basic and diluted earnings per share   |                                                                          | $                                                   | 0.20 |       |                    | $ | 0.03             |       |       | $ | 0.39 |       |       | $ | 0.11 |      
|                                       |                                                                          |                                                     |      |       |                    |   |                  |       |       |   |      |       |       |   |      |      
|                                       |                                                                          |                                                     |      |       |                    |   |                  |       |       |   |      |       |       |   |      |      
|Cash dividends per share               |                                                                          | $                                                   |     |       |                    | $ |                 |       |       | $ |     |       |       | $ |     |      
|                                       |                                                                          |                                                     |      |       |                    |   |                  |       |       |   |      |       |       |   |      |      

See Notes to Consolidated Financial Statements.

4



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##### Table of Contents



FORSYTH BANCSHARES, INC. AND SUBSIDIARY




CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2002 AND 2001


(Unaudited)


(Dollars in Thousands)


|                                                   |                                                                                   |                                               |                                           |        |      |        |       |        |      |        |  
|-------------------------------------------------- | --------------------------------------------------------------------------------- | --------------------------------------------- | ----------------------------------------- | ------ | ---- | ------ | ----- | ------ | ---- | ------ | -
|                                                   |                                                                                   |                                               |                                           |        | 2002 |        | 2001 
|                                                   |                                                                                   |                                               |                                           |        |      |        |      
|OPERATING ACTIVITIES                               |                                                                                   |                                               |                                           |        |      |        |       |       
|                                                   | Net income                                                                        |                                               | $                                         | 312    |      |        | $     | 91     |     
|                                                   | Adjustments to reconcile net income to net cash
provided by operating activities: |                                               |                                           |        |      |        |       |        |     
|                                                   |                                                                                   | Gain on sale of securities available-for-sale |                                           |        | (5   | )      |       |        | (6   | )     
|                                                   |                                                                                   | Depreciation                                  |                                           |        | 123  |        |       |        | 120  |       
|                                                   |                                                                                   | Provision for loan losses                     |                                           |        | 90   |        |       |        | 123  |       
|                                                   |                                                                                   | Net other operating activities                |                                           |        | 138  |        |       |        | (114 | )     
|                                                   |                                                                                   |                                               |                                           |        |      |        |       |       
|                                                   |                                                                                   |                                               | Net cash provided by operating activities |        |      | 658    |       |        |      | 214    |  
|                                                   |                                                                                   |                                               |                                           |        |      |        |       |       
|INVESTING ACTIVITIES                               |                                                                                   |                                               |                                           |        |      |        |       |       
|                                                   | Purchases of securities available-for-sale                                        |                                               |                                           | (7,905 | )    |        |       | (9,191 | )   
|                                                   | Purchases of restricted equity securities                                         |                                               |                                           | (6     | )    |        |       | (14    | )   
|                                                   | Proceeds from maturities of securities available-for-sale                         |                                               |                                           | 2,774  |      |        |       | 9,353  |     
|                                                   | Proceeds from sales of securities available-for-sale                              |                                               |                                           | 2,356  |      |        |       | 4,037  |     
|                                                   | Proceeds from maturities of securities held-to-maturity                           |                                               |                                           | 103    |      |        |       | 535    |     
|                                                   | Net increase in interest-bearing deposits in banks                                |                                               |                                           | (23    | )    |        |       | (7     | )   
|                                                   | Net decrease in federal funds sold                                                |                                               |                                           | 2,438  |      |        |       | 2,104  |     
|                                                   | Net increase in loans                                                             |                                               |                                           | (3,051 | )    |        |       | (7,266 | )   
|                                                   | Purchase of premises and equipment                                                |                                               |                                           | (828   | )    |        |       | (565   | )   
|                                                   |                                                                                   |                                               |                                           |        |      |        |       |       
|                                                   |                                                                                   |                                               | Net cash used in investing activities     |        |      | (4,142 | )     |        |      | (1,014 | )
|                                                   |                                                                                   |                                               |                                           |        |      |        |       |       
|FINANCING ACTIVITIES                               |                                                                                   |                                               |                                           |        |      |        |       |       
|                                                   | Net increase in deposits                                                          |                                               |                                           | 2,549  |      |        |       | 1,719  |     
|                                                   | Net increase in securities sold under repurchase agreements                       |                                               |                                           | 9      |      |        |       |       |     
|                                                   |                                                                                   |                                               |                                           |        |      |        |       |       
|                                                   |                                                                                   |                                               | Net cash provided by financing activities |        |      | 2,558  |       |        |      | 1,719  |  
|                                                   |                                                                                   |                                               |                                           |        |      |        |       |       
|Net increase (decrease) in cash and due from banks |                                                                                   |                                               | (926                                      | )      |      |        | 919   |       
|Cash and due from banks at beginning of period     |                                                                                   |                                               | 2,781                                     |        |      |        | 2,575 |       
|                                                   |                                                                                   |                                               |                                           |        |      |        |       |       
|Cash and due from banks at end of period           |                                                                                   | $                                             | 1,855                                     |        |      | $      | 3,494 |       
|                                                   |                                                                                   |                                               |                                           |        |      |        |       |       

See Notes to Consolidated Financial Statements.

5



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FORSYTH BANCSHARES, INC. AND SUBSIDIARY




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


NOTE 1. BASIS OF PRESENTATION



| |                                                                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The consolidated financial information for Forsyth Bancshares, Inc.
(the Company) included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management,
necessary for a fair statement of results for the interim period.



| |                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The results of operations for the three and six month periods ended
June 30, 2002 are not necessarily indicative of the results to be
expected for the full year.

NOTE 2. CURRENT ACCOUNTING DEVELOPMENTS



| |                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------
| | There are no recent accounting pronouncements that have had, or are
expected to have, a material effect on the Companys financial
statements.

6



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ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

The following is managements discussion and analysis of certain significant
factors which have affected the financial position and operating results of
Forsyth Bancshares, Inc. and its bank subsidiary, The Citizens Bank of Forsyth
County (the Bank), during the periods included in the accompanying
consolidated financial statements.

Special Cautionary Notice Regarding Forward Looking Statements

Certain of the statements made herein under the caption Managements
Discussion and Analysis of Financial Condition and Results of Operations
(MD&A) are forward-looking statements for purposes of the Securities Act of
1933, as amended (the Securities Act) and the Securities Exchange Act of
1934, as amended (the Exchange Act), and as such may involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of Forsyth Bancshares, Inc. to be
materially different from future results, performance or achievements expressed
or implied by such forward-looking statements. Such forward looking statements
include statements using words such as may, will, anticipate, should,
would, believe, contemplate, expect, estimate, continue, may,
intend, or other similar words and expressions of the future. Our actual
results may differ significantly from the results we discuss in these
forward-looking statements.

These forward-looking statements involve risks and uncertainties and may not be
realized due to a variety of factors, including, without limitation: the
effects of future economic conditions; governmental monetary and fiscal
policies, as well as legislative and regulatory changes; the risks of changes
in interest rates on the level and composition of deposits, loan demand, and
the values of loan collateral, securities, and other interest-sensitive assets
and liabilities; interest rate risks; the effects of competition from other
commercial banks, thrifts, mortgage banking firms, consumer finance companies,
credit unions, securities brokerage firms, insurance companies, money market
and other mutual funds and other financial institutions operating in our market
area and elsewhere, including institutions operating regionally, nationally,
and internationally, together with such competitors offering banking products
and services by mail, telephone, computer, and the Internet.

Critical Accounting Policies

We have adopted various accounting policies which govern the application of
accounting principles generally accepted in the United States in the
preparation of our financial statements. Our significant accounting policies
are described in the footnotes to the consolidated financial statements at
December 31, 2001 as filed on our annual report on Form 10-KSB.

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

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

7



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##### Table of Contents



Liquidity and Capital Resources

We consider our liquidity to be adequate to meet operating and loan funding
requirements at June 30, 2002. At June 30, 2002, the liquidity ratio (i.e.
cash, short-term assets and marketable assets divided by deposits) was
approximately 31% and the loan to deposit ratio was approximately 76%. As the
loan portfolio grows, we will continue to monitor the liquidity and make
adjustments as deemed necessary. Investing our available funds in loans and
other high yielding securities will increase earnings potential.

Requirements by banking regulators include the monitoring of risk-based capital
guidelines for banks and holding companies that are designed to make capital
requirements more sensitive to differences in risk profiles and account for off
balance sheet items. We exceed the regulatory minimums on capital requirements
and ratios. However, as we continue to grow and the loan portfolio increases,
these ratios should adjust downward. Management will monitor these amounts and
ratios on a continuous basis. The minimum capital requirements and the actual
capital ratios on a consolidated and bank-only basis are as follows:

|                           |  |              |       |      |  |             |       |   |  |            |      |  
|-------------------------- |  | ------------ | ----- | ---- |  | ----------- | ----- | - |  | ---------- | ---- | -
|                           |  | Actual       |       |      |  |            
|                           |  |              |       |      |  |            
|                           |  |              |       |      |  |             |       |   |  | Regulatory
|                           |  |              |       |      |  |             |       |   |  | Minimum   
|                           |  | Consolidated |       | Bank |  | Requirement
|                           |  |              |       |      |  |            
|Leverage capital ratios    |  |              | 10.45 | %    |  |             | 8.71  | % |  |            | 4.00 | %
|Risk-based capital ratios: |  |              |       |      |  |             |       |   |  |            |      |  
|Tier I capital             |  |              | 12.96 |      |  |             | 10.83 |   |  |            | 4.00 |  
|Total capital              |  |              | 14.07 |      |  |             | 11.95 |   |  |            | 8.00 |  

Off-Balance Sheet Risk

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

Our 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. We use the same credit policies in making commitments and
conditional obligations as we do for on-balance sheet instruments. A summary
of our commitments is as follows:

|                             |  |          |        | 
|---------------------------- |  | -------- | ------ | 
|                             |  | June 30,
|                             |  | 2002    
|                             |  |         
|Commitments to extend credit |  | $        | 11,625 | 
|Letters of credit            |  |          | 125    | 
|                             |  |          |        | 
|                             |  | $        | 11,750 | 
|                             |  |          |        | 

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 us upon extension of
credit, is based on our credit evaluation of the customer.

8



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Standby letters of credit are conditional commitments issued by us 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 we deem necessary.

Financial Condition

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

|                                            |  |                        |        |              |  |   |        | 
|------------------------------------------- |  | ---------------------- | ------ | ------------ |  | - | ------ | 
|                                            |  | June 30,               |        | December 31,
|                                            |  | 2002                   |        | 2001        
|                                            |  |                        |        |             
|                                            |  | (Dollars in Thousands)
|Cash and due from banks                     |  | $                      | 1,855  |              |  | $ | 2,781  | 
|Interest-bearing deposits in banks          |  |                        | 209    |              |  |   | 186    | 
|Federal funds sold                          |  |                        | 4,928  |              |  |   | 7,366  | 
|Securities                                  |  |                        | 19,156 |              |  |   | 16,362 | 
|Loans, net                                  |  |                        | 62,876 |              |  |   | 59,916 | 
|Premises and equipment                      |  |                        | 3,754  |              |  |   | 3,048  | 
|Other assets                                |  |                        | 808    |              |  |   | 927    | 
|                                            |  |                        |        |              |  |   |        | 
|                                            |  | $                      | 93,586 |              |  | $ | 90,586 | 
|                                            |  |                        |        |              |  |   |        | 
|                                            |  |                        |        |              |  |   |        | 
|Deposits                                    |  | $                      | 83,334 |              |  | $ | 80,785 | 
|Securities sold under repurchase agreements |  |                        | 9      |              |  |   |       | 
|Other liabilities                           |  |                        | 411    |              |  |   | 350    | 
|Stockholders equity                        |  |                        | 9,832  |              |  |   | 9,451  | 
|                                            |  |                        |        |              |  |   |        | 
|                                            |  | $                      | 93,586 |              |  | $ | 90,586 | 
|                                            |  |                        |        |              |  |   |        | 

Our total assets grew by a relatively stagnant 3.3% for the first six months of
2002. Deposit growth of $2,549,000 coupled with decreases in federal funds
sold and cash positions totaling $3,364,000 was invested almost equally in
securities and loans. Our loan to deposit ratio has remained steady since
December 31, 2001, holding in the 75-76% range. Our current federal funds and
securities balances should provide the funds for expected loan growth in the
future. Stockholders equity has increased by $381,000 due to net income of
$312,000 and increases of unrealized gains on sales of securities
available-for-sale, net of tax, of $69,000.

We are in process of building new main office facilities to replace the leased
facilities we currently occupy. At June 30, 3002 we had approximately $1.6
million of commitments for capital expenditures to complete the construction
process.

9



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Results of Operations for the Three Months Ended June 30, 2002 and 2001 and for
the Six Months Ended June 30, 2002 and 2001

Following is a summary of our operations for the periods indicated.

|                          |  |                        |       |      |  |   |       | 
|------------------------- |  | ---------------------- | ----- | ---- |  | - | ----- | 
|                          |  | Three Months Ended    
|                          |  | June 30,              
|                          |  | 2002                   |       | 2001
|                          |  |                        |       |     
|                          |  | (Dollars in Thousands)
|                          |  |                       
|Interest income           |  | $                      | 1,449 |      |  | $ | 1,654 | 
|Interest expense          |  |                        | 522   |      |  |   | 904   | 
|                          |  |                        |       |      |  |   |       | 
|Net interest income       |  |                        | 927   |      |  |   | 750   | 
|Provision for loan losses |  |                        | 50    |      |  |   | 67    | 
|Other income              |  |                        | 199   |      |  |   | 72    | 
|Other expense             |  |                        | 835   |      |  |   | 718   | 
|                          |  |                        |       |      |  |   |       | 
|Pretax income             |  |                        | 241   |      |  |   | 37    | 
|Income taxes              |  |                        | 81    |      |  |   | 11    | 
|                          |  |                        |       |      |  |   |       | 
|Net income                |  | $                      | 160   |      |  | $ | 26    | 
|                          |  |                        |       |      |  |   |       | 

|                          |  |                        |       |      |  |   |       | 
|------------------------- |  | ---------------------- | ----- | ---- |  | - | ----- | 
|                          |  | Six Months Ended      
|                          |  | June 30,              
|                          |  | 2002                   |       | 2001
|                          |  |                        |       |     
|                          |  | (Dollars in Thousands)
|                          |  |                       
|Interest income           |  | $                      | 2,882 |      |  | $ | 3,322 | 
|Interest expense          |  |                        | 1,077 |      |  |   | 1,843 | 
|                          |  |                        |       |      |  |   |       | 
|Net interest income       |  |                        | 1,805 |      |  |   | 1,479 | 
|Provision for loan losses |  |                        | 90    |      |  |   | 123   | 
|Other income              |  |                        | 439   |      |  |   | 143   | 
|Other expense             |  |                        | 1,683 |      |  |   | 1,364 | 
|                          |  |                        |       |      |  |   |       | 
|Pretax income             |  |                        | 471   |      |  |   | 135   | 
|Income taxes              |  |                        | 159   |      |  |   | 44    | 
|                          |  |                        |       |      |  |   |       | 
|Net income                |  | $                      | 312   |      |  | $ | 91    | 
|                          |  |                        |       |      |  |   |       | 

Our net interest income has increased by $177,000 and $326,000 for the second
quarter and first six months of 2002, respectively, as compared to the same
periods in 2001. Our net interest margin increased to 4.22% during the first
six months of 2001 as compared to 3.67% for the first six months of 2001 and
3.84% for the entire year of 2001. The increases in net interest income and
the net interest margin are due primarily to the repricing of our
interest-bearing liabilities at lower rates.

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The provision for loan losses decreased by $17,000 and $33,000 for the second
quarter and first six months of 2002,respectively, as compared to the same
periods in 2001. The decreases are due primarily to a lower rate of loan
growth, lower net loan charge-offs, and our assessment of inherent risk in the
loan portfolio. We incurred net charge-offs of $26,000 in the first six months
of 2002 as compared to $94,000 in the first six months of 2001. Based upon our
evaluation of the loan portfolio, we believe the allowance for loan losses to
be adequate to absorb losses on existing loans that may become uncollectible.
Our evaluation considers significant factors relative to the credit risk and
loss exposure in the loan portfolio, including past due and classified loans,
historical experience, underlying collateral values, and current economic
conditions that may affect the borrowers ability to repay. The allowance for
loan losses is evaluated by segmenting the loan portfolio into unclassified and
classified loans. An allowance percentage is applied to the unclassified loans
to establish a general allowance for loan losses. The allowance percentage
determined is based upon our experience specifically and the historical
experience of the banking industry generally. The classified loans, including
impaired loans, are analyzed individually in order to establish a specific
allowance for loan losses. The total of these allowances are compared to the
minimum allowance level range in accordance with internal policy, (1.20% to
1.30% of total loans outstanding), with the greater amount being recorded as
the allowance for loan losses.

Information with respect to nonaccrual, past due and restructured loans at June
30, 2002 and 2001 is as follows:

|                                                                                                         |  |                        |   |      |  |   |    | 
|-------------------------------------------------------------------------------------------------------- |  | ---------------------- | - | ---- |  | - | -- | 
|                                                                                                         |  | June 30,              
|                                                                                                         |  |                       
|                                                                                                         |  | 2002                   |   | 2001
|                                                                                                         |  |                        |   |     
|                                                                                                         |  | (Dollars in Thousands)
|Nonaccrual loans                                                                                         |  | $                      | 2 |      |  | $ | 13 | 
|Loans contractually past due ninety days or more as to interest
or principal payments and still accruing |  |                        | 0 |      |  |   | 1  | 
|Restructured loans                                                                                       |  |                        | 0 |      |  |   | 0  | 
|Potential problem loans                                                                                  |  |                        | 0 |      |  |   | 0  | 
|Interest income that would have been recorded on nonaccrual
and restructured loans under original terms  |  |                        | 1 |      |  |   | 1  | 
|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.

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Loans classified for regulatory purposes as loss, doubtful, substandard, or
special mention that have not been included in the table above do not represent
or result from trends or uncertainties which management reasonably expects will
materially impact future operating results, liquidity or capital resources.
These classified loans do not represent material credits about which management
is aware of any information which causes management to have serious doubts as
to the ability of such borrowers to comply with the loan repayment terms.

Information regarding certain loans and allowance for loan loss data through
June 30, 2002 and 2001 is as follows:

|                                                                              |                          |   |                        |    |      |   |        |    | 
|----------------------------------------------------------------------------- | ------------------------ | - | ---------------------- | -- | ---- | - | ------ | -- | 
|                                                                              |                          |   | Six Months Ended      
|                                                                              |                          |   | June 30,              
|                                                                              |                          |   |                       
|                                                                              |                          |   | 2002                   |    | 2001
|                                                                              |                          |   |                        |    |     
|                                                                              |                          |   | (Dollars in Thousands)
|Average amount of loans outstanding                                           |                          | $ | 61,703                 |    |      | $ | 51,557 |   
|                                                                              |                          |   |                        |    |      |   |        |   
|Balance of allowance for loan losses at beginning of period                   |                          | $ | 756                    |    |      | $ | 604    |   
|                                                                              |                          |   |                        |    |      |   |        |   
|                                                                              |                          |   |                        |    |      |   |        |   
|Loans charged off                                                             |                          |   |                        |    |      |   |        |   
|                                                                              | Commercial and financial |   | $                      | 20 |      |   | $      | 0  | 
|                                                                              | Real estate mortgage     |   |                        | 0  |      |   |        | 0  | 
|                                                                              | Installment              |   |                        | 10 |      |   |        | 95 | 
|                                                                              |                          |   |                        |    |      |   |        |   
|                                                                              |                          |   | 30                     |    |      |   | 95     |   
|                                                                              |                          |   |                        |    |      |   |        |   
|                                                                              |                          |   |                        |    |      |   |        |   
|Loans recovered                                                               |                          |   |                        |    |      |   |        |   
|                                                                              | Commercial and financial |   |                        | 0  |      |   |        | 0  | 
|                                                                              | Real estate mortgage     |   |                        | 0  |      |   |        | 0  | 
|                                                                              | Installment              |   |                        | 4  |      |   |        | 1  | 
|                                                                              |                          |   |                        |    |      |   |        |   
|                                                                              |                          |   | 4                      |    |      |   | 1      |   
|                                                                              |                          |   |                        |    |      |   |        |   
|                                                                              |                          |   |                        |    |      |   |        |   
|Net charge-offs                                                               |                          |   | 26                     |    |      |   | 94     |   
|                                                                              |                          |   |                        |    |      |   |        |   
|                                                                              |                          |   |                        |    |      |   |        |   
|Additions to allowance charged to operating expense during period             |                          |   | 90                     |    |      |   | 123    |   
|                                                                              |                          |   |                        |    |      |   |        |   
|                                                                              |                          |   |                        |    |      |   |        |   
|Balance of allowance for loan losses at end of period                         |                          | $ | 820                    |    |      | $ | 633    |   
|                                                                              |                          |   |                        |    |      |   |        |   
|                                                                              |                          |   |                        |    |      |   |        |   
|Ratio of net loans charged off during the period to
average loans outstanding |                          |   | 0.04                   | %  |      |   | .18    | % 
|                                                                              |                          |   |                        |    |      |   |        |   

Other income has increased by $127,000 and $296,000 during the second quarter
and first six months of 2002, respectively, as compared to the same periods in
2001. The increases are due to increased service charges on deposit accounts
of $12,000 and $26,000,respectively, and increased mortgage loan origination
fees $120,000 and $264,000, respectively. We commenced mortgage loan
origination activities in the second quarter of 2001.

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Other expenses increased by $117,000 and $319,000 during the second quarter and
first six months of 2002, respectively, as compared to the same periods in
2001. The increases are due to increased salaries and employee benefits of
$103,000 and $246,000, respectively, and increased other operating expenses of
$10,000 and $59,000, respectively. Salaries and employee and benefits have
increased due to increased salaries associated with mortgage loan origination
activities and to other annual salary increases. Other operating expenses have
increased due to the overall growth of the Bank.

The provision for income taxes was $159,000 for the first six months of 2002
(effective tax rate of 34%) as compared to $44,000 for the first six months of
2001 (effective tax rate of 33%). The increase in amount is due to higher pre
tax income in 2002.

Overall, net income has increased by $134,000 and $221,000 for the second
quarter and first six months of 2002, respectively, as compared to the same
periods in 2001. The increases are due to higher net interest margins,
decreased loans loss provisions, and higher other income due substantially in
part to mortgage loan origination activities.

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

13



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##### Table of Contents






PART II  OTHER INFORMATION




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



| | (a) |  | The Annual Meeting of Shareholders was held on May 21, 2002.                                                                                                                                                                                                                                                   
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | The following directors were elected for a term of one year and
until a successor is duly qualified and elected:                                                                                                                                                                                               
|
| |     |  | Catherine M. Amos
Jeffrey S. Bagley
Danny M. Bennett
Michael P. Bennett
Bryan L. Bettis
Talmadge W. Bolton
Thomas L. Bower, III
Charles R. Castleberry
Charles D. Ingram
Herbert A. Lang, Jr.
John P. McGruder
James J. Myers
Timothy M. Perry
Danny L. Reid
Charles R. Smith
Wyatt L. Willingham
Jerry M. Wood
|
| | (c) |  | The following matters were voted on at the meeting as was
previously identified in the Proxy materials forwarded to each shareholder. The shares
represented at the meeting (440,371 or 55.04%) voted as follows:                                                                                              
|
| | 1.  |  | Proposal to elect the 17 individuals
nominated by management as Directors.                                                                                                                                                                                                                                     

|                       |  |     |         |         |  |         |   |  |  |  |   | 
|---------------------- |  | --- | ------- | ------- |  | ------- | - |  |  |  | - | 
|Director               |  | For |         | Against |  | Abstain
|                       |  |     |         |         |  |        
|Catherine M. Amos      |  |     | 440,371 |         |  |         | 0 |  |  |  | 0 | 
|Jeffrey S. Bagley      |  |     | 440,371 |         |  |         | 0 |  |  |  | 0 | 
|Danny M. Bennett       |  |     | 440,371 |         |  |         | 0 |  |  |  | 0 | 
|Michael P. Bennett     |  |     | 440,371 |         |  |         | 0 |  |  |  | 0 | 
|Bryan L. Bettis        |  |     | 440,371 |         |  |         | 0 |  |  |  | 0 | 
|Talmadge W. Bolton     |  |     | 440,371 |         |  |         | 0 |  |  |  | 0 | 
|Thomas L. Bower, III   |  |     | 440,371 |         |  |         | 0 |  |  |  | 0 | 
|Charles R. Castleberry |  |     | 440,371 |         |  |         | 0 |  |  |  | 0 | 

14



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##### Table of Contents






PART II  OTHER INFORMATION




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (Continued)

|                     |  |     |         |         |  |         |       |  |  |  |   | 
|-------------------- |  | --- | ------- | ------- |  | ------- | ----- |  |  |  | - | 
|Director             |  | For |         | Against |  | Abstain
|                     |  |     |         |         |  |        
|Charles D. Ingram    |  |     | 440,371 |         |  |         | 0     |  |  |  | 0 | 
|Herbert A. Lang, Jr. |  |     | 440,371 |         |  |         | 0     |  |  |  | 0 | 
|John P. McGruder     |  |     | 440,371 |         |  |         | 0     |  |  |  | 0 | 
|James J. Myers       |  |     | 437,871 |         |  |         | 2,500 |  |  |  | 0 | 
|Timothy M. Perry     |  |     | 437,871 |         |  |         | 2,500 |  |  |  | 0 | 
|Danny L. Reid        |  |     | 440,371 |         |  |         | 0     |  |  |  | 0 | 
|Charles R. Smith     |  |     | 440,371 |         |  |         | 0     |  |  |  | 0 | 
|Wyatt L. Willingham  |  |     | 440,371 |         |  |         | 0     |  |  |  | 0 | 
|Jerry M. Wood        |  |     | 440,371 |         |  |         | 0     |  |  |  | 0 | 




ITEM 5. OTHER INFORMATION

None.




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



| |              
| | -------------
| | (a) Exhibits.



| | 99.1 |  | Certification of the Chief Executive
Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 99.2 |  | Certification of the Chief Financial
Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



| |                         
| | ------------------------
| | (b) Reports on Form 8-K.



| |      
| | -----
| | None.

15



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##### Table of Contents






SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

|      |  |                 |  |                                       |  |                                             
|----- |  | --------------- |  | ------------------------------------- |  | --------------------------------------------
|      |  |                 |  | FORSYTH BANCSHARES, INC.
(Registrant)
|      |  |                 |  |                                       |  |                                             
|      |  |                 |  |                                       |  |                                             
|DATE: |  | August 13, 2002 |  | BY:                                   |  | /s/ Timothy M. Perry                        
|      |  |                 |  |                                       |  |                                             
|      |  |                 |  |                                       |  | Timothy M. Perry, President and C.E.O.      
|      |  |                 |  |                                       |  | (Principal Executive Officer)               
|      |  |                 |  |                                       |  |                                             
|      |  |                 |  |                                       |  |                                             
|DATE: |  | August 13, 2002 |  | BY:                                   |  | /s/ Timothy D. Foreman                      
|      |  |                 |  |                                       |  |                                             
|      |  |                 |  |                                       |  | Timothy D. Foreman, Vice President,         
|      |  |                 |  |                                       |  | Secretary and Treasurer                     
|      |  |                 |  |                                       |  | (Principal Financial and Accounting Officer)

16