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 [FEE REQUIRED]

                   For the fiscal year ended December 31, 1997

                                       OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

         For the transition period from                    to

                        Commission file number: 33-37078

                    FNC BANCORP, INC. (A GEORGIA CORPORATION)
                I.R.S. EMPLOYER IDENTIFICATION NUMBER 58-1910615
                420 SOUTH MADISON AVENUE, DOUGLAS, GEORGIA 31533
                        TELEPHONE NUMBER: (912) 384-1100

           Securities registered pursuant to Section 12(b) of the Act

                                      None

           Securities registered pursuant to Section 12(g) of the Act

                      Common Stock, Par Value $1 Per Share

Check whether the registrant  (1) has filed all reports  required to be filed by
Section 13 or 15(d) of the Securities  Exchange Act of 1934 during the preceding
12 months (or for such shorter  period that the  registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No ____

Check if there is no  disclosure of  delinquent  filers  pursuant to Item 405 of
Regulation S-B is not contained herein,  and will not 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. [X]

The registrant's total revenues for the fiscal year ended December 31, 1997 were
$3,804,000.

As of March 1, 1998,  registrant had outstanding 405,710 shares of common stock,
$1 par value per share,  which is registrant's only class of common stock. There
is no established market for the common stock of the registrant.  Therefore, the
aggregate  market  value  of the  voting  stock  held  by  nonaffiliates  of the
registrant is not known.

                       DOCUMENTS INCORPORATED BY REFERENCE


                                      None


<PAGE>


                                     PART I.

ITEM 1.  DESCRIPTION OF BUSINESS

The Company

         FNC Bancorp,  Inc. (the "Company") was  incorporated  under the laws of
Georgia on  September  19,  1990 to serve as a bank  holding  company  for First
National Bank of Coffee County (In Organization) (the "Bank"). A charter for the
Bank was issued by the Office of the Comptroller of the Currency (the "OCC") and
the Bank commenced operations on September 23, 1991.

         The Company's offices are located at 420 South Madison Avenue, Douglas,
Georgia and its telephone  number is (912) 384-1100.  The Company  maintains its
offices at the office of First National Bank of Coffee County at this address.

         On January 8, 1991,  the Company  commenced an offering of a minimum of
360,000 and a maximum of 500,000 shares of its Common Stock, $1.00 par value per
share, to the public at a price of $10.00 per share to raise funds to capitalize
and  acquire  all of the  stock of the Bank.  The  Company  completed  its stock
offering  with the sale of 405,710  shares by December 31, 1991. Of the proceeds
of the stock sold,  $3,500,000  was used to acquire all of the stock of the bank
upon its being issued a charter and commencing operations.  The Company received
all  required  federal and state  regulatory  approvals to become a bank holding
company.

         The Company has been  organized  to  facilitate  the Bank's  ability to
serve its current and future customers' requirements for financial services. The
holding company  structure  provides  flexibility for expansion of the Company's
banking   business   through  the  possible   acquisition  of  other   financial
institutions  and the provision of additional  banking-related  services which a
traditional  commercial  bank may not provide under  present  laws.  The holding
company  structure  also  affords  additional  flexibility  in terms of  capital
formation and financing opportunities. Nevertheless, the primary activity of the
Company  initially  is to be  ownership  and  operation  of the Bank.  While the
Company  may seek in the  future to  acquire  additional  banks or bank  holding
companies  or to  engage  in  other  activities  appropriate  for  bank  holding
companies  under  appropriate  circumstances  as  permitted  by law, the Company
currently  has no  plans,  understandings  or  agreements  concerning  any other
activities. The results of operations and financial condition of the Company for
the foreseeable future will be determined primarily by the results of operations
and financial condition of the Bank.

The Bank

General

         On August 15, 1990, the Organizers of the Company and the Bank filed an
application with the OCC to charter the Bank as a national  banking  association
under the name "First  National  Bank of Coffee  County" to conduct  business in
Douglas,  Coffee County, Georgia and the surrounding area. The Organizers of the
Company and the Bank are Robert L. Cation, Milton G. Clements, William C. Ellis,
Jr., Ralph G. Evans,  A. Curtis Farrar,  Jr.,  Norman E. Fletcher and Timothy J.
Palmer.  The Bank was  authorized  to commence  its banking  business by the OCC
issuing a national bank charter for the Bank.  Operations commenced on September
23,  1991.  The OCC had  granted  preliminary  approval  of the  application  on
December 14, 1990. Final approval of the application was subject to, among other
conditions,  capitalization  of the Bank at a minimum of $3,500,000 prior to the
Bank opening for business.

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         The Bank's business consists primarily of attracting  deposits from the
general  public and,  with these and other  funds,  making  real  estate  loans,
consumer loans,  business loans,  residential and commercial  construction loans
and other investments.  In addition to deposits, sources of funds for the Bank's
loans and other investments include  amortization and prepayment of loans, sales
of participation in loans, sales of investment securities and may include in the
future, sales of loans. The principal sources of income for the bank is interest
and fees  collected on loans and, to a lesser  extent,  interest  and  dividends
collected on other investments.

         The Bank's  earnings  depend  primarily on its "net  interest  income,"
which is the difference  between the interest income it receives from its assets
(primarily its loans and other  investments)  and the interest expense (or "cost
of  funds")  which it pays on its  liabilities  (primarily  its  deposits).  Net
interest  income is a function of (i) the  difference  between rates of interest
earned on interest-earning assets and rates of interest paid on interest-bearing
liabilities  (the "interest rate spread" or "net interest  spread") and (ii) the
relative amounts of interest-earning  assets and  interest-bearing  liabilities.
When interest-earning assets approximate or exceed interest-bearing liabilities,
any positive  interest rate spread will generate net interest  income.  The Bank
adheres to an asset and liability  management  strategy  intended to control the
impact of interest rate  fluctuations  upon the Bank's  earnings and to make the
yields on its loan portfolio and other  investments  more responsive to its cost
of funds, in part by closely matching the maturities of interest-earnings assets
and  interest-bearing  liabilities,  while still maximizing net interest income.
Nevertheless,  the Bank is affected  by changes in the levels of interest  rates
and other factors beyond its control.

Philosophy and Strategy

         The Bank  serves as a  community  bank in a market  dominated  by large
regional  banks.  The  philosophy  and  strategy  of the Bank with regard to its
initial  operations is to emphasize its local  ownership and  management and its
prompt and responsive personal service in order to attract customers and acquire
a market share now  controlled  by other  financial  institutions  in the Bank's
market area. Most of the shares sold in the Company's  public offering were sold
in the Coffee  County area,  and this local  ownership  has helped to provide an
immediate customer base. The Bank's President and the other Organizers also have
significant  contacts in Coffee County,  which has provided additional customers
and is expected to continue to do so.

         The Bank's  strategy is to attract as  customers  small-to-medium  size
manufacturing,  retail,  professional  and  industrial  businesses  as  well  as
middle-to-upper-income  consumers and professionals.  These customers  typically
provide  a higher  level of  profitability  and a lower  degree  of risk than do
customers of the larger banks and are prime  customers of smaller banks. As more
and more small banks are merged out of existence,  the opportunities to fill the
void  created by these  mergers are  enhanced  for small de novo banks that have
both adequate capital resources and experienced management. The Bank's President
has  experience  in  servicing  these  types of  customers  at  other  financial
institutions  and uses that experience to continue to provide  services to these
types of  customers.  See "Item 10.  Directors  and  Executive  Officers  of the
Registrant." Management of the Bank also has an active officer and director call
program to describe the  products,  services and  philosophy of the Bank to both
existing and prospective customers.

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Market Area

         The Bank's primary service area ("PSA") is Coffee County,  Georgia, and
the Bank is located in Douglas,  the county seat and largest city in the county.
The Bank's  secondary  service area includes the surrounding  areas of Atkinson,
Bacon, Ben Hill,  Berrien,  Irwin,  Jeff Davis and Ware Counties.  Access to the
area is provided by U.S.  Highways  441 and 221 and State  Highways 135 and 158,
all intersecting in Douglas.  Douglas also has access to four interstate highway
systems,  I-10, I-16, I-75, and I-95, all within 100 miles of the city. The area
is  comprised  of  a  diversified   mix  of  commercial,   retail,   industrial,
agricultural and residential areas.

         Population  in the  PSA  was  approximately  26,894  in  1980  and  was
estimated  at 30,538 in 1989,  an  increase of almost  13.6% in nine years.  The
population is projected to be 32,991 by 1994. The population is well distributed
by age and is slightly more than 52% female. The median age of the population is
29.8 years.

         It is estimated  that 36.5% of the households in the PSA have an income
level of over  $25,000,  a figure that is projected  to reach 46.4% by 1994.  In
addition,  it is estimated  that 22.2% of the  households in the PSA had incomes
over  $35,000  and it is  estimated  that this will  increase  to 31.6% by 1994.
Aggregate household income has grown from $44,740,000 in 1970 to $123,320,000 in
1980  to  $279,990,000  in  1989,  and  is  projected  to  reach   approximately
$391,800,000 by 1994. The median family income is projected to grow from $10,942
in 1980 to  $23,096 by 1994,  an  increase  of over 111% in 14 years.  Continued
growth  in the  population  and  income  level of the PSA,  however,  cannot  be
assured.

         The estimates and  projections set forth above were taken directly from
the information set forth in an exhibit to the Company's  application to the OCC
for  authority to organize the Bank.  Such  exhibit to the OCC  application  was
included as an exhibit to the Company's  Registration  Statement  filed with the
Securities  and Exchange  Commission  in connection  with the  Company's  public
offering.

Services

Loan Portfolio.  As a full service commercial bank, the Bank offers a wide range
of commercial loans,  consumer loans and real estate loans consisting  primarily
of short and intermediate-term  residential lot loans,  residential construction
loans,   commercial   construction  loans,   agricultural  loans  and  permanent
residential and commercial real estate loans.  Commercial loans consist of loans
made to  individual,  corporate  and  partnership  borrowers  for a  variety  of
business  purposes and includes Small Business  Administration  loans.  Consumer
loans consist primarily of installment loans to individuals for personal, family
and household purposes,  including loans for automobiles,  home improvements and
investments.

         A majority of the Bank's  construction  loans  consists of  residential
construction loans. These loans typically involve a higher degree of risk to the
Bank than many other types of loans due to the borrower's greater sensitivity to
the effect  that  changes in  economic  conditions  may have on the success of a
project.  The Bank  intends  to  compensate  for the  increased  risk in part by
charging higher  interest rates and fees on these types of loans.  The Bank also
offers residential first mortgage loan products with fifteen year maximum terms.
Long-term   fixed  rate  mortgage  loans  are  originated  by  the  Bank  for  a
correspondent  Bank  and  are  not  held  in  the  Bank's  loan  portfolio.  All
construction,  acquisition and  development  loans will be limited to 80% of the
appraised  value of the  property  upon  completion  and will be  secured by the
related real estate and construction property.

                                       4
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         The Bank intends to originate  variable rate loans and short term fixed
rate consumer loans of five years or less. See "Asset and Liability  Management"
below.

Deposits.  The Bank  offers a wide  range of  commercial  and  consumer  deposit
services  that are typically  available in most banks and savings  institutions,
including  interest bearing and  noninterest-bearing  checking  accounts,  money
market checking  accounts,  negotiable order of withdrawal  ("NOW") accounts and
savings and other time deposits of various types ranging from daily money market
accounts  to  longer-term  certificates  of  deposit.  In  addition,  retirement
accounts such as Individual  Retirement  Accounts are available.  All depositors
are insured by the Federal Deposit Insurance  Corporation (the "FDIC") up to the
maximum amount permitted by law. The Bank's  depositors  consist of individuals,
businesses and their employees  within the Bank's market area,  obtained through
personal  solicitation  by  the  Bank's  officers  and  directors,  direct  mail
solicitation  and  advertisement  in the local media.  The Bank pays competitive
interest  rates  on time and  savings  deposits  and has a  service  charge  fee
schedule  competitive  with other  financial  institutions  in the Bank's market
area,  covering such matters as maintenance fees on checking accounts,  per item
processing fees on checking  accounts,  returned check charges and other similar
fees.

Other  Services.  The Bank provides  other services such as official bank checks
and  money  orders,  MasterCard  and Visa  credit  cards,  safe  deposit  boxes,
travelers'  checks,  bank by mail, direct deposit of payroll and social security
checks,  U.S. Savings Bonds,  wire transfer of funds, a night depository and ATM
access.  The Bank also  provides an array of  personalized  banking  services to
middle-to upper-income individuals, with emphasis on knowledge of the individual
financial needs and objectives of these customers and timely response.  The Bank
seeks to promote long-term relationships with these types of customers.

Correspondent Banking

         Correspondent banking involves the provision of services by one bank to
another  bank which  cannot  provide that service for itself from an economic or
practical  standpoint.  The Bank has correspondent  banking  relationships  with
larger  commercial banks for investments,  liquidity,  federal funds lines, loan
participation,  check clearing services and consulting  services.  These include
Bankers  Bank  (Atlanta,  Georgia),  Regions  Bank  (Gainesville,  Georgia)  and
SunTrust Bank (Atlanta, Georgia).

         The Bank  sells loan  participation  to one or more  upstream  regional
correspondent banks with respect to loans that exceed the Bank's lending limit.


Asset and Liability Management

         The  primary  assets of the Bank  consists  of its loan and  investment
portfolios.  The Bank's loan portfolio consists primarily of variable rate loans
or fixed rate loans that  mature in less than five  years.  The  majority of the
Bank's  securities  investments  consist of  obligations  of the United  States,
obligations  guaranteed as to principal and interest by the United States, other
taxable  securities and certain  obligations of states and  municipalities.  The
Bank engages in federal  funds  transactions  with its  principal  correspondent
banks and currently  acts  primarily as a net seller of such funds.  The sale of
federal  funds  amounts  to a  short-term  loan from the Bank to  another  bank.
Ultimately,  the  Bank  will  strive  to  maintain  a loan  portfolio  equal  to
approximately  75% of assets and an investment  portfolio equal to approximately
16% of the assets,  with the  remaining 9% of the Bank's  assets  consisting  of
cash, fixed assets and other assets.

                                       5
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         Deposit accounts,  including  transaction  accounts,  time deposits and
certificates of deposit,  represent the majority of the liabilities of the Bank.
The Bank  does not seek  brokered  certificates  of  deposit  or other  types of
brokered deposits.

         Efforts are made  generally to match  maturities  and rates of the loan
and investment  portfolios with those  deposits,  although exact matching is not
possible.  Substantially  all of the loans with maturities in excess of one year
are  negotiated  on a variable  interest  rate basis or with a demand  repayment
provision.  By pricing  loans on a variable  rate  structure  or by keeping  the
maturities of the loan and investment portfolios relatively short term, the Bank
is able to negotiate loan rates or to reinvest securities proceeds at prevailing
market rates,  thereby helping maintain a generally  consistent  spread over the
interest  rates paid by the Bank on the deposits which are used to fund the loan
and investment portfolios.

         The Bank has established  policies and procedures designed to ensure an
acceptable  asset/liability  mix is monitored on a timely  basis,  with a report
reflecting the  interest-sensitive  liabilities  being prepared and presented to
the Bank's Board of Directors on a quarterly basis. The objective of this policy
is to control  interest-sensitive  assets and  liabilities so as to minimize the
impact of substantial movements in interest rates on the Bank's earnings.

         The Bank  has  developed  an  internal  lending  policy  for the  Bank,
including  appropriate  lending  limits for each  officer of the Bank based upon
such  criteria as the  experience  of the  individual  officer.  Management  has
appropriate procedures pertaining to lending and has established a lending limit
above which the approval of the Board of  Directors  is required.  Additionally,
the Bank is subject to certain  statutory  requirements  which generally provide
that the Bank may  grant  loans  and  extensions  of  credit  that are not fully
secured  to a single  borrower  up to  $525,000  (15% of the  Bank's  unimpaired
capital and surplus). The Bank also may grant additional loans and extensions of
credit to a single borrower up to $350,000 (10% of the bank's unimpaired capital
and surplus),  provided such additional loans and extensions of credit are fully
secured.

         The Bank does not, as a matter of course, finance purchases of raw land
or speculative  commercial or industrial  developments.  The Bank generally does
not make loans outside of Coffee County and the surrounding  seven county market
area and seeks to obtain a broad  diversification  of loan  customers.  The Bank
will  request  correspondent  banks to  participate  in loans when loan  amounts
exceed the Bank's legal limits or internal lending policies.  See "Correspondent
Banking" above.

Competition

         Banks generally compete with other financial  institutions  through the
banking  products and services  offered,  the pricing of services,  the level of
service provided, the convenience and availability of services and the degree of
expertise  and the personal  manner in which  services are offered.  In the PSA,
other than the Bank,  there are two regional  banks and four local banks.  These
include  SunTrust,  Citizens  Security  Bank,  Coffee  County Bank,  Southtrust,
Southeastern Bank and Broxton State Bank. The Bank is the newest in its PSA, and
the Bank encounters competition from most of these financial institutions. There
are no longer any  savings  institutions  in the PSA.  In the conduct of certain
areas of its  banking  business,  the Bank also  competes  with  credit  unions,
consumer finance companies,  insurance companies,  money market mutual funds and
other financial  institutions,  some of which are not subject to the same degree
of regulation and restrictions imposed upon the Bank.

                                       6
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         Many of the Bank's competitors have substantially greater resources and
lending  limits  than  the  Bank  has  and  offer  certain  services,   such  as
international banking services and trust services,  that the Bank currently does
not provide.  Moreover,  many of these  competitors have numerous branch offices
and other facilities in the PSA, a competitive advantage that the Bank initially
does not have.  Nevertheless,  in  evaluating  the  competition  in the PSA, the
management  and the Board of  Directors  believe  that there will be  sufficient
growth in banking activities for all of these institutions,  including the Bank,
to be  successful,  based in part on an average  annual growth of  approximately
5.7%  in  commercial  bank  deposits  in the  PSA  over  the  last  five  years.
Furthermore,  management  and the Board of Directors  believe that the extensive
banking  experience and contacts in the PSA of its President and the other board
members will enable the Bank to compete  effectively  without offering unusually
high interest rates for deposits or unusually low interest rates for loans.  The
Bank's relatively small size permits it to offer more personalized  service than
its  competitors,  which is  expected  to  provide  the Bank with a  competitive
advantage.

Employees

         At December 31, 1997,  the Bank  employed 23 full-time  employees and 4
part-time  employees.  The Company has no employees.  Holding company duties are
performed  by bank  employees  and where such  duties are  significant,  related
compensation  and benefit costs are  allocated to and  reimbursed by the holding
company.  The Bank considers its relationship  with its employees to be good. To
the  extent  possible,  the Bank  employs  persons  experienced  in the  banking
profession  and  persons who are  natives or long time  residents  of the Coffee
County area.

Supervision and Regulation

General

         As a bank holding company,  the company is subject to regulation by the
Board of  Governors  of the  Federal  Reserve  System  (the  "Federal  Reserve")
pursuant to the federal Bank Holding Company Act (the "BHCA") and by the Georgia
Department  of Banking and Finance (the  "Georgia  Department")  pursuant to the
Georgia Bank Holding Company Act (the "GBHCA").  The Company also is required to
file certain  reports with, and otherwise  comply with the rules and regulations
of, the Securities and Exchange  Commission (the "Commission") under the federal
securities laws.

         The Bank is a national bank and is subject to the  supervision  of, and
will be regularly examined by, the OCC. In addition, the Bank's deposit accounts
are insured up to applicable  limits by the bank  insurance  fund of the Federal
Deposit Insurance Corporation (the "FDIC") and the Bank,  therefore,  is subject
to regulation by the FDIC. As a member of the Federal Reserve  System,  the Bank
also is subject to regulation by the Federal Reserve.

         FIRREA was signed into law on August 9, 1989.  FIRREA primarily affects
the regulation of savings associations  ("thrifts") and savings and loan holding
companies  rather  than the  regulation  of  national  banks  and  bank  holding
companies such as the Bank and the Company. However, FIRREA does contain certain
provisions  affecting  banks  and  bank  holding  companies,  including  without
limitation,    provisions   affecting   deposit   insurance   premiums,   thrift
acquisitions,   liability  of  commonly  controlled   depository   institutions,
receivership  and  conservatorship   rights  and  procedures  and  substantially
increased penalties for violation of banking statutes, regulations and orders.

                                       7
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         To the extent that the following  information  describes  statutory and
regulatory  provisions,  it is  qualified  in its  entirety by  reference to the
particular statutory and regulatory provisions.  Any change in applicable law or
regulation  may have a material  effect on the  business  and  prospects  of the
Company and the Bank.

Regulation of the Company

Federal  Law. The Company is a bank  holding  company  within the meaning of the
BHCA and the GBHCA. As a bank holding  company,  the Company is required to file
with the Federal Reserve an annual report and such additional information as the
Federal  Reserve may require  pursuant to the BHCA. The Federal Reserve also may
make examinations of the Company and each of its subsidiaries.

         The Federal Reserve has adopted capital adequacy  guidelines for use in
its  examination and regulation of bank holding  companies.  Prior to January 1,
1991, the guidelines  employed two measures of capital:  primary  capital (which
included,  among other things, common stock, perpetual preferred stock, surplus,
undivided  profits and loan loss reserves and excluded most  intangible  assets)
and total capital (primary  capital plus certain forms of subordinated  debt and
limited life  preferred  stock).  The  guidelines  called for a minimum ratio of
primary  capital  to total  consolidated  assets of 5.5% and a minimum  ratio of
total capital to total  consolidated  assets of 6.0%. The Federal Reserve issued
risk-based capital adequacy  guidelines which went into effect in stages through
1992.

         Under the Federal Reserve's  risk-based  standards,  an entity's assets
and  off-balance  sheet  activities  are  categorized  into  one  of  four  risk
categories,  with  either a 0%,  20%,  50% or 100%  amount of capital to be held
against those assets.  In addition,  the guidelines  divide capital  instruments
into Tier 1 (core)  capital and Tier 2  (supplemental)  capital.  The risk-based
capital adequacy guidelines require that: (i) Tier 2 capital may not exceed 100%
of Tier 1 capital,  although  certain  Tier 2 capital  elements  are  subject to
additional  limitations;  (ii)  assets and off  balance  sheet items be weighted
according to risk; and (iii) the total capital to risk-weighted  assets ratio be
7.25% by the end of 1990, and 8% by the end of 1992.  The risk-based  guidelines
apply  on a  consolidated  basis  to only  those  bank  holding  companies  with
consolidated  assets of $150 million or more. For bank holding  companies,  like
the Company,  with less than $150 million in consolidated assets, the risk-based
guidelines generally are applied on a bank-only basis.

         If the capital of a bank holding  company falls below minimum  required
levels,  the bank holding company may be denied approval to acquire or establish
additional  banks or non-bank  businesses,  as  discussed  below.  Bank  holding
companies may be compelled by bank regulatory  authorities to invest  additional
capital in the event a  subsidiary  bank  experiences  either  significant  loan
losses or rapid  growth of loans or deposits.  In  addition,  the company may be
required to provide  additional capital to any additional banks it acquires as a
condition to obtaining the approvals and consents of regulatory  authorities  in
connection with such acquisitions.

                                       8
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         Bank holding companies are required by the BHCA to obtain approval from
the Federal  Reserve prior to acquiring,  directly or  indirectly,  ownership or
control of more than 5% of the  outstanding  shares of any class of voting stock
of  any  bank  or  bank  holding  company.  Bank  holding  companies  and  their
subsidiaries  also are  prohibited  from  acquiring  any  voting  shares  of, or
interest in, any banks located  outside of the state in which the  operations of
the bank holding  company's  subsidiaries  are located unless the acquisition is
authorized  specifically  by the  statutes  of the state in which the  target is
located. Several southeastern states, including Georgia, have enacted reciprocal
legislation that authorizes interstate  acquisitions of banking organizations by
bank holding companies within the southeastern United States, subject to certain
conditions and restrictions.  As a result of this  legislation,  the company may
become a candidate for  acquisition  by, or may itself seek to acquire,  banking
organizations located in those states that have enacted reciprocal  legislation.
(See,  however,  certain  restrictions  on  acquisitions  imposed  by the  GBHCA
discussed  below).  Additionally,  under the BHCA, as amended pursuant to FIRREA
and as implemented by a recent amendment to the Federal Reserve  regulations,  a
bank holding company may acquire a savings association, as defined in FIRREA, in
any state without regard to whether the bank holding  company can operate a bank
in that state.

         The  BHCA  also   prohibits  bank  holding   companies,   with  certain
exceptions, from acquiring more than 5% of the voting shares of any company that
is not a bank and from  engaging in any business  other than banking or managing
or controlling banks or other permissible  subsidiaries.  The Federal Reserve is
authorized  to approve,  among other  things,  the ownership of shares by a bank
holding  company in any company the activities of which the Federal  Reserve has
determined  to be so closely  related to banking or to managing  or  controlling
banks as to be a proper  incident  thereto.  Notice to and review by the Federal
Reserve of such activities would be necessary before the Company could engage in
such  activities.  The Federal  Reserve is  empowered to  differentiate  between
activities  that are initiated de novo by a bank holding company or a subsidiary
and activities commenced by acquisition of a going concern.

         The  Federal  Reserve  has been  granted  enforcement  powers over bank
holding  companies and  nonbanking  subsidiaries  to forestall  activities  that
represent  unsafe or unsound  practices or constitute  violations of law.  These
powers may be exercised through the issuance of cease-and-desist orders or other
actions.  The Federal  Reserve also is empowered to assess civil money penalties
against  companies or individuals  who violate the BHCA or orders or regulations
thereunder,  to order  termination  of  non-banking  activities  of  non-banking
subsidiaries of bank holding companies and to order termination of ownership and
control  of  a  non-banking  subsidiary  by  a  bank  holding  company.  Certain
violations may also result in criminal penalties.

         The status of the Company as a registered  bank holding  company  under
the BHCA does not exempt it from certain  federal and state laws and regulations
applicable to corporations  generally,  including,  without limitation,  certain
provisions of the federal securities laws.

         The Bank and the  Company is  "affiliated"  within  the  meaning of the
Federal  Reserve Act.  Certain  provisions of the Federal  Reserve Act establish
standards  for the  terms  of,  limit the  amount  of and  establish  collateral
requirements  with  respect  to any  loans  or  extensions  of  credit  to,  and
investments in,  affiliates by the Bank as well as set arms-length  criteria for
such transactions and for certain other  transactions  (including payment by the
Bank for services and under any contract)  between the Bank and its  affiliates.
In  addition,  related  provisions  of the  Federal  Reserve Act and the Federal
Reserve  regulations limit the amounts of, and establish required procedures and
credit  standards  with  respect  to,  loans and other  extensions  of credit to
officers,  directors and principal shareholders of the Bank, the Company and any
subsidiary of the Company, and to related interests of such persons.

                                       9
<PAGE>



         Under Section 106(b) of the Bank Holding Company Act Amendments of 1970
(12 U.S.C. ss. 1972), the Bank is prohibited from extending  credit,  selling or
leasing  property or furnishing  any service to any customer on the condition or
requirement  that the customer (i) obtain any  additional  property,  service or
credit from the Company,  the Bank or any other subsidiary of the Company,  (ii)
refrain from  obtaining any property,  credit or service from any  competitor of
the  Company,  the Bank or any  subsidiary  of the Company or (iii)  furnish any
credit,  property or service to the Company,  the Bank or any  subsidiary of the
Company.

         As a bank holding company,  the Company is required to give the Federal
Reserve  prior written  notice of any purchase or redemption of its  outstanding
equity  securities if the gross  consideration  for the purchase or  redemption,
when  combined  with  the net  consideration  paid  for all  such  purchases  or
redemptions  during  the  preceding  12  months,  is equal to 10% or more of the
Company's  consolidated  net worth.  The Federal  Reserve may disapprove  such a
purchase or redemption if it determines that the proposal  constitutes an unsafe
or unsound practice, would violate any law, regulation, Federal Reserve order or
directive or any condition  imposed by, or written  agreement  with, the Federal
Reserve.

         In November 1985, the Federal Reserve  adopted its Policy  Statement on
Cash  Dividends Not Fully Covered by Earnings.  The Policy  Statement sets forth
various guidelines that the Federal Reserve believes that a bank holding company
should  follow in  establishing  its dividend  policy.  In general,  the Federal
Reserve stated that bank holding  companies  should not pay dividends except out
of current earnings and unless the prospective rate of earnings retention by the
holding  company appears  consistent  with its capital needs,  asset quality and
overall financial condition.

         The  activities of the Company also are restricted by the provisions of
the  Glass-Steagall  Act of 1933 (the "Act"). The Act prohibits the Company from
owning subsidiaries engaged principally in the issue,  flotation,  underwriting,
public  sale or  distribution  of  securities.  The  interpretation,  scope  and
application  of the  provisions  of the Act  currently  are  being  reviewed  by
regulators and legislators. The outcome of the current examination and appraisal
of the  provisions  in the Act and the effect of such  outcome on the ability of
bank holding  companies  to engage in  securities-related  activities  cannot be
predicted.

Georgia Law. The Company  also is a bank holding  company  within the meaning of
the GBHCA,  which  provides  that,  without  the prior  approval  of the Georgia
Department, it is unlawful (i) for any bank holding company to acquire direct or
indirect  ownership or control of more than 5% of the voting shares of any bank,
(ii) for any bank holding company or subsidiary  thereof,  other than a bank, to
acquire all or  substantially  all of the assets of a bank or (iii) for any bank
holding company to merge or consolidate with any other bank holding company.  It
also is unlawful  for any company to acquire  direct or  indirect  ownership  or
control of more than 5% of the voting shares of any bank in Georgia  unless such
bank has been in existence and continuously  operating 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.  One bank  holding  companies,  such as the
Company,  are prohibited  from  acquiring  another bank until their initial bank
subsidiary has been  incorporated for a period of two years. The effect of these
provisions  is to negate the  possibility  that the  Company or the Bank will be
acquired  by another  company  for a minimum of five years and to  prohibit  the
Company from acquiring another bank for a period of two years.

                                       10
<PAGE>



         In addition,  the Georgia Department has established a minimum level of
capital to total assets of 5%, with certain adjustments, on a consolidated basis
for bank holding companies. The capital guidelines assume adequate liquidity and
a moderate  degree of risk in the loan and investment  portfolios as well as any
off balance  sheet  activities.  In assessing  compliance  with the  guidelines,
therefore, the Georgia Department reviews the relationship of on and off balance
sheet risks to capital and requires those  institutions  with high or inordinate
levels of risk to adhere to higher  capital  standards.  Bank holding  companies
whose operations  involve,  or are exposed to high or inordinate degrees of risk
are  expected  to hold  additional  capital to  compensate  for such  risks.  In
addition,  bank holding companies engaging in significant  nonbanking activities
typically require higher capital ratios than do banks alone.

         The BHC Act, as amended by the  interstate  banking  provisions  of the
Riegle-Neal  Interstate  Banking  and  Branching  Efficiency  Act of  1994  (the
"Interstate  Banking  Act"),  which  became  effective  on  September  29, 1995,
repealed the prior statutory restrictions on interstate acquisitions of banks by
bank holding  companies,  and a bank holding  company located in Georgia may now
acquire a bank located in any other state,  and any bank holding company located
outside Georgia may lawfully acquire a Georgia-based  bank,  regardless of state
law to the contrary, in either case subject to certain deposit-percentage, aging
requirements,  and other restrictions.  The Interstate Banking Act also provides
that,  after  June 1,  1997,  national  and state  chartered  banks  may  branch
interstate   through   acquisitions  of  banks  in  other  states.  By  adopting
legislation  prior to that  date,  a state  has the  ability  either to "opt in"
(which  Georgia  has  done)  and  accelerate  the date  after  which  interstate
branching  is  permissible  or  "opt  out"  and  prohibit  interstate  branching
altogether.

Regulation of the Bank

         As a national banking association,  the Bank is subject to supervision,
examination  and regulation by the OCC under the National Bank Act. It also is a
member of the Federal  Reserve  System and subject to  regulation by the Federal
Reserve  under the Federal  Reserve Act. The deposits of the Bank are insured by
the FDIC to the  full  extent  provided  by law and,  therefore,  the Bank  pays
insurance  assessments  to, and is subject to regulation and  examination by the
FDIC.

         The FDIC  currently  insures  the  deposits  of each  member  bank to a
maximum of $100,000  per  depositor.  For this  protection,  the Bank will pay a
semi-annual   statutory  assessment  and  will  be  subject  to  the  rules  and
regulations of the FDIC.  The FDIC has the authority to prevent the  continuance
or  development  of  unsound  and  unsafe  banking  practices.  The FDIC is also
authorized, among other things, to approve conversions,  mergers, consolidations
and  assumption  of deposit  liability  transactions  between  insured banks and
uninsured banks or institutions, and to prevent capital or surplus diminution in
such transactions where the resulting, continuing, or assumed bank is an insured
nonmember state bank. The FDIC premium rate is set by the Financial Institutions
Reform  Recovery and  Enforcement  Act  ("FIRREA")  which was signed into law on
August 9, 1989. FIRREA primarily affects the regulation of savings  associations
and savings and loan holding  companies rather than the regulation of commercial
banks  and  bank  holding  companies.   However,  FIRREA  does  contain  certain
provisions  affecting  banks  and  bank  holding  companies,  including  without
limitation,    provisions   affecting   deposit   insurance   premiums,   thrift
acquisitions,   liability  of  commonly  controlled   depository   institutions,
receivership  and  conservatorship   rights  and  procedures  and  substantially
increased penalties for violation of banking statutes, regulations and orders.

                                       11
<PAGE>



         In 1991, the Federal Deposit Insurance  Corporation  Improvement Act of
1991 (Act) was enacted.  The Act affects all federally  insured  banks,  savings
banks and thrifts.  The Act contains a $70 billion  recapitalization of the Bank
Insurance  Fund (BIF) by  significantly  increasing the amount that the FDIC can
borrow from the Treasury.  The FDIC must assess  premiums that are sufficient to
give the BIF  reserves  of $1.25 for each $100 of insured  deposits.  Additional
significant provisions of the Act include: requiring prompt corrective action by
regulators  if  minimum  capital  standards  are  not  met;  establishing  early
intervention  procedures for "significantly"  undercapitalized (to be defined by
the FDIC)  institutions;  limiting FDIC reimbursement of uninsured deposits when
large banks fail; requiring an annual regulatory  examination;  and imposing new
auditing and accounting requirements, effective for fiscal years beginning on or
after January 1, 1993,  including  management and auditor  reporting on internal
controls over financial reporting and on compliance with laws and regulations.

         Effective for fiscal years  beginning on or after January 1, 1993,  the
Act requires FDIC-insured  depository institutions with assets in excess of $150
million to file an "annual  report" with the federal  regulatory  agencies  that
will be available for public  inspection.  This requirement can be satisfied for
subsidiaries of a bank holding company by an audit of the consolidated financial
statements of the holding company. In addition, the Act requires that the annual
report must include an auditor's report on management's assertions regarding the
effectiveness  of internal  controls  pertaining  to financial  reporting and on
agreed upon procedures  concerning compliance with specific laws and regulations
designated by federal regulatory agencies.  The management and auditor reporting
requirements  may be  satisfied at the holding  company  level,  depending  upon
various   criteria  for  asset  levels  and  CAMEL  ratings  of  the  individual
subsidiaries.  However, all FDIC-insured depository institutions over $9 billion
will require the additional management and auditor reports.

         Federal  and  Georgia  laws   regulate   many  aspects  of  the  Bank's
operations,   including  branch  offices,  remote  facilities,  lending  limits,
borrowing,   permitted  investments,   declaration  of  dividends,  mergers  and
acquisitions,  electronic  funds transfers,  deposits  reserve  requirements and
interest rates payable on deposits and chargeable on loans.  The Bank is subject
to applicable  Georgia laws that do not conflict  with, or are not preempted by,
federal  banking laws,  including  Georgia laws  limiting the maximum  allowable
rates of interest on loans and extensions of credit to customers of the Bank.

         Similar to the Federal Reserve's former capital requirements applicable
to the Company,  prior to January 1, 1991,  the OCC  required  Banks to maintain
minimum primary capital equal to 5.5% of total assets and total capital equal to
6% of  total  assets,  each  as  defined  and  adjusted  pursuant  to the  OCC's
regulations.  Also  like the  Federal  Reserve,  the OCC has  issued  risk-based
capital rules  requiring (i) at least 50% of a national  bank's total capital to
consist of common and certain other equity capital;  (ii) assets and off balance
sheet items to be weighted  according to risk;  (iii) Tier 1 capital to equal or
exceed  4%  of  total  assets  (see  below);  and  (iv)  the  total  capital  to
risk-weighted  assets  ratio to be 7.25% by the end of 1990 and 8% by the end of
1992. The OCC recently  announced that its requirement that Tier 1 capital equal
4% of a bank's  total  assets  will apply only to those  banks that  receive the
highest regulatory rating from the OCC based upon the OCC's routine  examination
process.  Banks receiving lower regulatory  ratings will be required to maintain
Tier 1 capital in an amount that is at least 100 to 200 basis points higher than
4% of total assets.

                                       12
<PAGE>



         Under the National Bank Act, if the capital stock of a national bank is
impaired by losses or otherwise, the OCC is authorized to require payment of the
deficiency by assessment upon the bank's shareholders.  To the extent necessary,
if any such assessment is not paid by any shareholder  after notice,  the OCC is
authorized  to sell the stock of such  shareholder  to satisfy  the  deficiency.
National banks also are subject to legal  limitations on the amount of dividends
they can pay.  The prior  approval  of the OCC is  required  if the total of all
dividends  declared  by a national  bank in any  calendar  year will exceed such
bank's net  profits  (as defined by  statute)  for that year  combined  with its
retained net profits for the preceding two years, less any required transfers to
surplus or to a fund for the retirement of any preferred stock. Other rules that
are  administered by the OCC and that are applicable to national banks relate to
issuance of  securities,  establishment  of branches,  limitations  on credit to
subsidiaries   and  other  aspects  of  the  business  and  activities  of  such
subsidiaries.  The OCC has broad  authority  to  prohibit  national  banks  from
engaging  in unsafe or  unsound  banking  practices  and  periodically  examines
national  banks  to  determine   their   compliance   with  applicable  law  and
regulations.  National banks also must make periodic  reports of their condition
to the OCC.

         Certain  federal  legislation,  including the  Depository  Institutions
Deregulation  and  Monetary  Control  Act  of  1980  and  the  Garn-St.  Germain
Depository  Institutions  Act  of  1982,  has  had  a  significant  impact  upon
competition  among  financial  institutions.  In  particular,  banking  laws and
regulations  enacted  since 1980 have  increased  substantially  the  ability of
savings institutions to compete with commercial banks for deposits.

Prompt Corrective Action

         The  Federal  Deposit  Insurance  Corporation  Improvement  Act of 1991
("FDICIA")  establishes  a system of prompt  corrective  action to  resolve  the
problems of  undercapitalized  institutions.  Under this  system,  which  became
effective  in December  1992,  the federal  banking  regulators  are required to
establish five capital  categories (well  capitalized,  adequately  capitalized,
undercapitalized,     significantly     undercapitalized,     and     critically
undercapitalized)  and to take certain mandatory  supervisory  actions,  and are
authorized to take other discretionary  actions, with respect to institutions in
the three  undercapitalized  categories,  the severity of which will depend upon
the capital category in which the institution is placed. Generally, subject to a
narrow exception, FDICIA requires the banking regulator to appoint a receiver or
conservator for an institution that is critically undercapitalized.  The federal
banking  regulators have specified by regulation the relevant  capital level for
each category.

         Under the final agency rules  implementing the prompt corrective action
provisions an institution that (i) has a Total  Risk-Based  Capital Ratio of 10%
or greater, a Tier 1 Risk-Based  Capital Ratio of 6% or greater,  and a Leverage
Ratio of 5% or greater and (ii) is not subject to any written agreement,  order,
capital  directive,   or  prompt  corrective  action  directive  issued  by  the
appropriate  federal  banking  regulator  is deemed to be well  capitalized.  An
institution  with a Total  Risk-Based  Capital Ratio of 8% or greater,  a Tier 1
Risk-Based Capital Ratio of 4% or greater,  an a Leverage Ratio of 4% or greater
is considered to be adequately capitalized.  A depository institution that has a
Total  Risk-Based  Capital  Ratio of less than 8%, a Tier 1  Risk-Based  Capital
Ratio of less than 4%, or a Leverage  Ratio of less than 4% is  considered to be
undercapitalized.  A depository  institution that has a Total Risk-Based Capital
Ratio of less than 6%, a Tier 1 Risk-Based  Capital  Ratio of less than 3%, or a
Leverage   Ratio  of  less  than  3%,   is   considered   to  be   significantly
undercapitalized,  and an  institution  that has a  tangible  equity  capital to
assets   ratio   equal  to  or  less  than  2%  is   deemed  to  be   critically
undercapitalized.  For purposes of the  regulation,  the term "tangible  equity"
includes  core  capital  elements  counted as Tier 1 Capital for purposes of the
risk-based  capital  standards,   plus  the  amount  of  outstanding  cumulative
perpetual  preferred stock  (including  related  surplus),  minus all intangible
assets with certain exceptions.  A depository institution may be deemed to be in
a  capitalized  category  that is lower than is indicated by its actual  capital
position if it receives an unsatisfactory examination rating.

                                       13
<PAGE>



         An institution that is categorized as  undercapitalized,  significantly
undercapitalized,  or  critically  undercapitalized  is  required  to  submit an
acceptable  capital   restoration  plan  to  its  appropriate   federal  banking
regulator. Under FDICIA, a bank holding company must guarantee that a subsidiary
depository  institution meets its capital  restoration plan,  subject to certain
limitations.  The  obligation of a controlling  holding  company under FDICIA to
fund  a  capital  restoration  plan  is  limited  to  the  lesser  of  5%  of an
undercapitalized  subsidiary's  assets or the amount required to meet regulatory
capital  requirements.   An  undercapitalized   institution  is  also  generally
prohibited  from  increasing  its average  total  assets,  making  acquisitions,
establishing  any branches,  or engaging in any new line of business,  except in
accordance with an accepted capital restoration plan or with the approval of the
FDIC. In addition,  the appropriate federal banking regulator is given authority
with respect to any undercapitalized  depository  institution to take any of the
actions  it  is  required  to  or  may  take  with  respect  to a  significantly
undercapitalized  institution  as described  below if it determines  "that those
actions are necessary to carry out the purpose" of FDICIA.

         For  those  institutions  that are  significantly  undercapitalized  or
undercapitalized  and either fail to submit an  acceptable  capital  restoration
plan or fail to implement an approved capital  restoration plan, the appropriate
federal  banking  regulator must require the  institution to take one or more of
the following  actions:  (i) sell enough shares,  including  voting  shares,  to
become  adequately  capitalized;  (ii)  merge  with  (or  be  sold  to)  another
institution  (or holding  company),  but only if grounds exist for  appointing a
conservator  or  receiver;  (iii)  restrict  certain  transactions  with banking
affiliates as if the "sister bank" exception to the  requirements of Section 23A
of the Federal Reserve Act did not exist; (iv) otherwise  restrict  transactions
with  bank  or  non-bank  affiliates;  (v)  restrict  interest  rates  that  the
institution  pays  on  deposits  to  "prevailing  rates"  in  the  institution's
"region;"  (vi)  restrict  asset  growth or reduce  total  assets;  (vii) alter,
reduce, or terminate activities;  (viii) hold a new election of directors;  (ix)
dismiss any director or senior  executive  officer who held office for more than
180 days immediately  before the institution became  undercapitalized,  provided
that in requiring dismissal of a director or senior officer,  the regulator must
comply with certain  procedural  requirements,  including the opportunity for an
appeal in which the  director or officer  will have the burden of proving his or
her value to the institution;  (x) employ "qualified" senior executive officers;
(ix) cease accepting deposits from correspondent depository institutions;  (xii)
divest certain nondepository  affiliates which pose a danger to the institution;
or (xiii) be divested by a parent  holding  company.  In  addition,  without the
prior approval of the  appropriate  federal banking  regulator,  a significantly
undercapitalized  institution  may not pay any  bonus  to any  senior  executive
officer or increase the rate of compensation for such officer.

         At December 31, 1997, the Company's  bank  subsidiary had the requisite
capital levels to qualify as well capitalized.

                                       14
<PAGE>



FDIC Insurance Assessments

         Pursuant to FDICIA, the FDIC adopted a new risk-based assessment system
for  insured   depository   institutions  that  takes  into  account  the  risks
attributable  to  different   categories  and   concentrations   of  assets  and
liabilities.  The new system, which went into effect on January 1, 1994, assigns
an institution to one of three capital  categories:  (i) well capitalized;  (ii)
adequately capitalized;  and (iii) undercapitalized.  These three categories are
substantially  similar  to the prompt  corrective  action  categories  described
above,  with the  "undercapitalized"  category  including  institutions that are
undercapitalized,     significantly     undercapitalized,     and     critically
undercapitalized  for prompt corrective action purposes.  An institution is also
assigned by the FDIC to one of three  supervisory  subgroups within each capital
group. An  institution's  insurance  assessment rate is then determined based on
the capital category and supervisory category to which it is assigned. Under the
final   risk-based   assessment   system,   there  are  nine   assessment   risk
classifications (i.e., combinations of capital groups and supervisory subgroups)
to which different assessment rates are applied. Assessment rates for members of
both the Bank Insurance Fund ("BIF") and the Savings Association  Insurance Fund
("SAIF")  for the  first  half of 1995  ranged  from 23 basis  points  (0.23% of
deposits) for an institution in the highest category (i.e.,  "well  capitalized"
and  "healthy") to 31 basis points (0.31% of deposits) for an institution in the
lowest  category  (i.e.,   "undercapitalized"   and   "substantial   supervisory
concern").  These rates were  established for both funds to achieve a designated
ratio of reserves to insured deposits (i.e., 1.25%) within a specified period of
time.

         Once the designated ratio for the BIF was reached in May 1995, the FDIC
was authorized to reduce the minimum  assessment  rate below the 23 basis points
and to set future assessment rates at such levels that would maintain the fund's
reserve  ratio at the  designated  level.  In  August  1995,  the  FDIC  adopted
regulations reducing the assessment rates for BIF-member banks. Subsequently, on
November 14, 1995, the FDIC announced that,  beginning in 1997, it would further
reduce the deposit insurance premiums for 92% of all BIF members that are in the
highest  capital and  supervisory  categories to $2,000 per year,  regardless of
deposit size.

         Under the FDIA,  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.

                                       15
<PAGE>



Safety and Soundness Standards

         The FDIA, as amended by FDICIA and the Riegle Community Development and
Regulatory  Improvement  Act of  1994,  requires  the  federal  bank  regulatory
agencies to prescribe  standards,  by  regulations  or  guidelines,  relating to
internal  controls,   information  systems  and  internal  audit  systems,  loan
documentation,  credit underwriting,  interest rate risk exposure, asset growth,
asset quality,  earnings,  stock valuation and compensation,  fees and benefits,
and such  other  operational  and  managerial  standards  as the  agencies  deem
appropriate. The federal bank regulatory agencies have adopted, effective August
9, 1995, a set of guidelines prescribing safety and soundness standards pursuant
to FDICIA, as amended.  The guidelines  establish general standards  relating to
internal  controls  and  information  systems,   internal  audit  systems,  loan
documentation,  credit  underwriting,  interest rate exposure,  asset growth and
compensation,  fees, and benefits.  In general,  the guidelines  require,  among
other things, appropriate systems and practices to identify and manage the risks
and exposures  specified in the guidelines.  The guidelines  prohibit  excessive
compensation  as an unsafe and unsound  practice  and describe  compensation  as
excessive  when the amounts paid are  unreasonable  or  disproportionate  to the
services performed by an executive  officer,  employee,  director,  or principal
shareholders.  The federal  banking  agencies  determined  that stock  valuation
standards were not appropriate.  In addition,  the agencies adopted  regulations
that authorize,  but do not require,  an agency to order an institution that has
been given notice by an agency that it is not  satisfying any of such safety and
soundness standards to submit a compliance plan. If, after being so notified, an
institution  fails  to  submit  an  acceptable  compliance  plan or fails in any
material respect to implement an accepted compliance plan, the agency must issue
an order  directing  action to  correct  the  deficiency  and may issue an order
directing other actions of the types to which an undercapitalized association is
subject  under the  "prompt  corrective  action"  provisions  of  FDICIA.  If an
institution  fails to comply with such an order,  the agency may seek to enforce
such order in judicial  proceedings  and to impose  civil money  penalties.  The
federal bank regulatory  agencies also proposed guidelines for asset quality and
earnings standards.

        Federal banking regulations applicable to all banks, among other things,
(i) provide federal bank  regulatory  agencies with powers to prevent unsafe and
unsound  banking  practices;  (ii)  restrict  preferential  loans  by  banks  to
"insiders"  of  banks;  (iii)  require  banks  to keep  information  on loans to
principal  shareholders  and  executive  officers;  and  (iv)  prohibit  certain
director and officer interlocks between financial institutions.



                                       16
<PAGE>



Monetary Policy

        Banking is a business  that depends on interest rate  differentials.  In
general,  the  difference  between  the  interest  rates paid by the Bank on its
deposits and other  borrowings and the interest rates received on loans extended
to its customers and on securities  held in its  portfolios  comprises the major
portion of the Bank's earnings.

        The  earnings and growth of the Bank and of the Company are affected not
only by general economic conditions,  both domestic and foreign, but also by the
monetary and fiscal policies of the United States and its agencies, particularly
the Board. The Board implements  national  monetary policy (as opposed to fiscal
policy),  such as seeking to curb  inflation and combat  recession,  by its open
market operations in the United States government securities, adjustments in the
amount of industry  reserves  that banks and other  financial  institutions  are
required to  maintain  and  adjustments  to the  discount  rates  applicable  to
borrowings by banks from the Federal Reserve System. The actions of the Board in
these areas  influence  the growth of bank loans,  investments  and deposits and
also affect  interest rates charged and paid on deposits.  The nature and impact
of any future changes in monetary policies cannot be predicted with certainty.

Other Regulatory Matters

        The Board,  in 1985,  issued a policy  statement  on the payment of cash
dividends by bank holding companies.  In the statement,  the Board expressed its
view that a bank holding company  experiencing  earnings weakness should not pay
cash dividends  exceeding its net income or that can be funded only in ways that
weaken the holding company's financial health, such as by borrowing.

        The  United  States  Congress  and the  Georgia  General  Assembly  have
periodically  considered and adopted legislation that has resulted in, and could
further result in deregulation  of both banks and other financial  institutions.
Such legislation could modify or eliminate geographic  restrictions on banks and
bank  holding  companies  and current  prohibitions  against  banks  engaging in
certain non-banking activities. Such legislative changes could place the Company
in more direct competition with other financial  institutions,  including mutual
funds,  securities  brokerage firms,  insurance companies and investment banking
firms.  The effect of any such legislation on the business of the company cannot
be accurately predicted. The Company cannot predict what other legislation might
be enacted or what other regulations might be adopted, or if enacted or adopted,
the effect thereof.

Taxation

General.  In  general,  the  Company and the Bank is taxed in the same manner as
other  corporations  under the Internal  Revenue  Code of 1986,  as amended (the
"Code"),  although the Code contains certain rules which may affect the taxation
of banks to a greater degree than other corporations. The general rate structure
and certain of these special rules are discussed below.

Rates.  Corporation  income is subject to  graduated  federal  income tax rates,
beginning  at 15% of the  corporation's  first  $50,000 of taxable  income,  and
increasing to a maximum rate of 34% with respect to taxable  income in excess of
$75,000.  However,  taxable  income that falls between  $100,000 and $335,000 is
subject to an additional 5% surcharge, up to a maximum surcharge of $11,750.

                                       17
<PAGE>



Bad Debt  Reserves.  The use of the  reserve  method of  computing  the bad debt
deduction  is no  longer  available  to  any  bank  which,  either  alone  or in
combination with all members of its  parent-subsidiary  controlled group, has an
average  adjusted  basis in its  total  combined  assets  of in  excess  of $500
million.  Such a bank must use the specific  charge-off  method of deducting bad
debts.  Because the company has assets of less than $500 million, it is eligible
to  use  the  reserve  method,  but  is  limited  to the  experience  method  of
calculating  additions to its bad debt reserve.  The experience  method measures
the ratio of actual  bad debts to total  outstanding  loans  based on a six-year
moving average.

Interest Expense on Tax-Exempt Obligations.  In general, a bank is not permitted
to deduct that portion of its interest expense allocable to tax-exempt  interest
income.  The  allocation of a bank's  interest  expense to  tax-exempt  interest
income is based on the relative  proportion of the bank's total average adjusted
basis in its tax-exempt  obligations to its total average  adjusted basis in all
of its assets.  There is an  exception  to this  disallowance  rule for interest
expense  allocable  to  "qualified   tax-exempt   obligations,"  which  must  be
designated as such by the issuer and which are not private activity bonds.

Net Operating  Losses.  Net operating  losses of a bank generally may be carried
back three taxable years and carried  forward 15 taxable years.  An exception to
the general rule permits the portion of a net operating loss incurred after 1986
and before 1994 which is  attributable to bad debt losses to be carried back ten
years and forward at least five years.

Alternative  Minimum Tax. All corporations,  including banks, are subject to the
corporate alternative minimum tax. For corporations, the alternative minimum tax
rate is 20% of the  alternative  minimum  taxable  income  ("AMTI") in excess of
certain exemption amounts ($40,000,  phased out when AMTI exceeds $150,000). The
alternative  minimum  tax is  payable  to the  extent  it  exceeds  regular  tax
liability.  It is possible  for a taxpayer  such as the Company to be liable for
alternative minimum tax even if its regular tax liability is zero.

        In computing AMTI, a taxpayer must include certain items not included in
the computation of regular taxable income.  Financial  institutions must include
in AMTI the difference  between the amount added to the bad debt reserve for the
year and the amount  which  would  have been  deducted  for bad debts  using the
actual experience method. For all corporations, AMTI includes certain tax-exempt
income  on  private  activity  bonds  and  75% of  the  difference  between  the
corporation's  "current  adjusted  earnings"  and its AMTI  (determined  without
regard to this item). A corporation's "current adjusted earnings" means its AMTI
(determined  without regard to this item), with certain  adjustments,  including
the addition of tax-exempt income.

Future Requirements

           Statutes and  regulations  are  regularly  introduced  which  contain
wide-ranging  proposals for altering the structure,  regulations and competitive
relationships  of the nation's  financial  institutions.  It cannot be predicted
whether or in what form any proposed  statute or  regulation  will be adopted or
the extent to which the business of FNC Bancorp, Inc. or its Subsidiary Bank may
be affected by such statute or regulation.


                                       18
<PAGE>



ITEM 2.  DESCRIPTION OF PROPERTY

        The  Company's  principal  executive  offices  are  located at 420 South
Madison Avenue,  Douglas,  Georgia.  This location is in the southern portion of
downtown  Douglas,  which is believed to be the most rapidly  growing section of
Douglas. This location was chosen because of its convenience to both the central
downtown  area and the retail and  professional  expansion  on the south side of
Douglas.  In  addition,   this  site  offers  good  visibility  to  the  one-way
south-bound  traffic on Peterson  Avenue and provides  access to customers  from
Cherry  Street and Madison  Avenue.  The Board of  Directors  are  dedicated  to
maintaining the viability of the downtown  Douglas area and believe that the new
Bank  building  will add an  attractive  building  to the  downtown  area  while
avoiding traffic congestion.

        The Organizers formed a partnership, the CEF Partnership, which obtained
an option to purchase a 3.46 acre site at the above location at a purchase price
of $330,000,  which is  approximately  $20,000 below the appraised  value of the
property.  On December 28, 1990,  the CEF  Partnership  exercised  its option to
purchase  the  property  from the seller,  Douglas  Peanut and Grain Co.,  whose
president,  Ralph G. Evans,  is an  Organizer  of the Company and the Bank.  The
purchase price for the option was $31,800,  all of which was credited toward the
purchase price of the property.  The Bank used $330,000 of the proceeds from the
sale of its stock to the Company to reimburse the  Organizers for the payment of
the  purchase  price of the option and to complete the purchase of the site from
the CEF Partnership.

        During  1992,  the  Bank  completed  construction  of  its  headquarters
building  on the site  purchased  from the  Partnership.  Construction  cost and
furniture, fixtures and equipment totaled approximately $1.3 million.

ITEM 3.  LEGAL PROCEEDINGS

         Neither the Company nor its  subsidiary  bank is a party to, nor is any
of their property the subject of, any material pending legal proceedings,  other
than the ordinarily routine proceedings  incidental to the business of the Bank,
nor to the knowledge of the  management of the Company are any such  proceedings
contemplated or threatened against it or its subsidiary.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS

         No  matters  were  submitted  to a vote of the  Company's  shareholders
during the fourth quarter of 1997.



                                       19
<PAGE>


                                     PART II


ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
                  SECURITY HOLDER MATTERS

         (a)      There currently is no public market for the Common Stock.

         (b)      As of March 1, 1998, there were approximately 350 holders of 
                  record of the Common Stock.

         (c)      The  Company  has  never  declared  or  paid  a  cash
                  dividend  but  expects  to do so in the  future.  The
                  payment of dividends by national  banks is restricted
                  by statute and regulation. See "Item 1.
                  Description of Business - Supervision and Regulation."






                                       20
<PAGE>



ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS

Cautionary Statement Regarding Forward-Looking Information

         The   Company's   1997   Annual   Report   on  Form   10-KSB   contains
forward-looking  statements in addition to historical  information.  The Company
cautions  that there are  various  important  factors  that could  cause  actual
results  to  differ  materially  from  those  indicated  in the  forward-looking
statements;  accordingly,  there can be no assurance that such indicated  result
will be realized.  These factors include legislative and regulatory  initiatives
regarding deregulation and restructuring of the banking industry; the extent and
timing  of  the  entry  of  additional  competition  in the  Company's  markets;
potential business strategies,  including acquisitions or dispositions of assets
or internal restructuring, that may be pursued by the Company; state and Federal
banking  regulations;  changes in or application of environmental and other laws
and regulations to which the Company is subject;  political,  legal and economic
conditions  and  developments;  financial  market  conditions and the results of
financing  efforts;  changes in commodity  prices and interest  rates;  weather,
natural disasters and other catastrophic  events; and other factors discussed in
the Company's  filings with the  Securities and Exchange  Commission,  including
this Annual Report on Form 10-KSB. The words "believe", "expect",  "anticipate",
"project" and similar expressions signify  forward-looking  statements.  Readers
are cautioned not to place undue reliance on any forward-looking statements made
by or on behalf of the Company.  Any such  statement  speaks only as of the date
the statement was made. The Company undertakes no obligation to update or revise
any forward-looking  statements.  Additional information with respect to factors
that may cause  results to differ  materially  from those  contemplated  by such
forward-looking  statements is included in the Company's  current and subsequent
filings with the Securities and Exchange Commission.

General

         The   Company's   principal   asset  is  its  ownership  of  the  Bank.
Accordingly,  the Company's  results of operations are primarily  dependent upon
the results of  operations of the Bank.  The Bank conducts a commercial  banking
business  which  consists of  attracting  deposits  from the general  public and
applying those funds to the origination of commercial,  consumer and real estate
loans (including  commercial loans  collateralized  by real estate).  The Bank's
profitability  depends primarily on net interest income, which is the difference
between interest income generated from interest-earning  assets (i.e., loans and
investments) less the interest expense incurred on interest-bearing  liabilities
(i.e., customer deposits and borrowed funds). Net interest income is affected by
the   relative   amounts  of   interest-earning   assets  and   interest-bearing
liabilities,  and the  interest  rate  paid and  earned on these  balances.  Net
interest income is dependent upon the Bank's interest rate spread,  which is the
difference between the average yield earned on its  interest-earning  assets and
the average rate paid on its interest-bearing liabilities. When interest-earning
assets  approximates  or  exceeds  interest-bearing  liabilities,  any  positive
interest rate spread will generate interest income.  The interest rate spread is
impacted by interest rates, deposit flows and loan demand. Additionally,  and to
a lesser  extent,  the Bank's  profitability  is affected by such factors as the
level of noninterest income and expenses,  the provision for loan losses and the
effective tax rate. Noninterest income consists primarily of loan and other fees
and income from the sale of investment securities.  Noninterest expenses consist
of compensation  and benefits,  occupancy-related  expenses,  deposit  insurance
premiums paid to the FDIC and other operating expenses.


                                       21
<PAGE>



Results of Operations For Years Ended December 31, 1997 and 1996

         The Company's  results of operations  are  determined by its ability to
effectively manage interest income and expense,  to minimize loan and investment
losses, to generate noninterest income and to control noninterest expense. Since
interest  rates are determined by market forces and economic  conditions  beyond
the  control of the  Company,  the ability to generate  net  interest  income is
dependent upon the Bank's ability to obtain an adequate  spread between the rate
earned  on  interest-earning  assets  and  the  rate  paid  on  interest-bearing
liabilities.  Thus, the key  performance  measure for net interest income is the
interest margin or net yield,  which is  taxable-equivalent  net interest income
divided by average earning assets.

         The primary component of consolidated  earnings is net interest income,
or the  difference  between  interest  income  on  interest-earning  assets  and
interest paid on  interest-bearing  liabilities.  The net interest margin is net
interest income  expressed as a percentage of average  interest-earning  assets.
Interest-earning  assets  consist of loans,  investment  securities  and Federal
funds  sold.   Interest-bearing   liabilities  consist  of  deposits  and  other
short-term  borrowings.  A portion of  interest  income is earned on  tax-exempt
investments,  such as state and  municipal  bonds.  In an  effort to state  this
tax-exempt  income and its  resultant  yield on a basis  comparable to all other
taxable  investments,  an  adjustment  is  made  to  analyze  this  income  on a
taxable-equivalent basis.

         The Company's net interest margin increased 29 basis points or 6.92% to
4.48%  in  1997  as   compared   to  4.19%  in  1996.   The  yield  on   average
interest-earning  assets  increased  marginally  to 8.73% in 1997 as compared to
8.71% in 1996.  The interest rate paid on average  interest-bearing  liabilities
decreased  17 basis  points  or 3.27% to 5.03% in 1997 as  compared  to 5.20% in
1996. Net interest income on a  taxable-equivalent  basis was $1,736,000 in 1997
as compared to $1,787,000 in 1996,  representing a decrease of $51,000 or 2.85%.
Although net interest income was favorably impacted by changes in interest rates
which  resulted in an increase in average yield on earning assets and a decrease
in  average  interest  paid  on  interest-bearing   liabilities,   the  increase
attributable  to changes in interest rates amounting to $131,000 was offset by a
decrease of $182,000 attributable to a decrease in volume.

         Average  interest-earning assets decreased $3,931,000 to $38,755,000 in
1997 from  $42,686,000  in 1996, a decrease of 9.21%.  Average  loans  decreased
$4,512,000;   average  Federal  funds  sold  decreased  $1,940,000  and  average
investments increased $2,521000. The decrease in average interest-earning assets
was accompanied by a decrease of $4,970,000,  or 11.66%,  in average deposits to
$37,647,000 in 1997 from $42,617,000 in 1996.  Approximately  19% of the average
deposits were noninterest-bearing deposits in 1997 and 1996.



                                       22
<PAGE>



         The  allowance for loan losses is  established  through a provision for
loan losses charged to expense and represents a reserve for potential  losses in
the loan portfolio. Loans are charged against the allowance for loan losses when
management  believes that the  collectibility of the principal is unlikely.  The
allowance  is an amount  that  management  believes  will be  adequate to absorb
possible  losses  on  existing  loans  that may  become  uncollectible  based on
evaluations of the  collectibility of loans and prior loan loss experience (when
sufficient  time elapses to establish  experience).  The  evaluations  take into
consideration  such  factors  as  changes  in the  nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem and/or impaired
loans and current economic  conditions that may affect the borrowers' ability to
pay. The  adequacy of the  allowance  for loan losses is evaluated  periodically
based on a review  of all  significant  loans,  with a  particular  emphasis  on
nonaccruing,   past  due  and  other  loans  that  management  believes  require
attention.

         The provision for loan losses  charged to earnings  amounted to $30,000
in 1997 as compared to $2,305,000 in 1996. The significant provision recorded by
the Company in 1996  resulted  from the charge off of a large number of consumer
loans and real estate  mortgage  loans.  In 1996,  net charge  offs  amounted to
$1,170,000,  which  consisted  of $397,000 in consumer  loans,  $495,000 in real
estate loans,  $373,000 in commercial and agricultural  loans and net recoveries
of $95,000 in  overdrafts.  The Company also recorded  additional  provisions to
cover loans that had been classified by regulators.  By comparison,  the Company
recorded  net charge offs of $391,000 in 1997,  which  consisted  of $176,000 in
consumer  loans,  $123,000 in real estate  loans and $92,000 in  commercial  and
agricultural loans. The current year's provision for loan losses and the balance
in the  allowance  for  loan  losses  at  December  31,  1997  were  based  upon
management's  evaluation  of the loan  portfolios  and the  potential  loan risk
associated with specific loans and selected loan  categories.  The allowance for
loan  losses as a  percentage  of total loans  outstanding  amounted to 3.66% at
December  31,  1997 as  compared  to  5.56% at  December  31,  1996.  Management
considers the year-end allowances adequate to cover potential losses in the loan
portfolio.

         Following is a  comparison  of  noninterest  income for the years ended
December 31, 1997 and 1996.
<TABLE>
<CAPTION>
                                                                      
                                                                                                         Increase
                                                                           1997            1996         (Decrease)
                                                                      --------------- --------------- ---------------
            <S>                                                       <C>             <C>             <C>

            Service charges on deposit accounts ..................... $       346,000 $       366,000 $       (20,000)
            Other service charges, commissions and fees .............          18,000          18,000               -
            Net realized gains on securities available for sale .....           1,000           1,000               -
            Origination fees on mortgage loans ......................          19,000          22,000          (3,000)
            Other ...................................................          38,000          26,000          12,000
                                                                      --------------- --------------- ---------------
                                                                      $       422,000 $       433,000 $       (11,000)
                                                                      =============== =============== ===============
</TABLE>

         The  decrease  in service  charges on  deposit  accounts  of $20,000 is
attributable to a decrease of  approximately  $5,000,000 in average  deposits in
1997.


                                       23
<PAGE>



         Following  is an  analysis of  noninterest  expense for the years ended
December 31, 1997 and 1996.
<TABLE>
<CAPTION>
                                                             
                                                                                                       Increase
                                                                     1997              1996           (Decrease)
                                                               -----------------  ---------------- -----------------
             <S>                                               <C>                <C>              <C>   
             Salaries and employee benefits .................. $         805,000   $       872,000  $        (67,000)
             Equipment and occupancy expense .................           233,000           213,000            20,000
             Accounting and auditing expenses ................            97,000            45,000            52,000
             Advertising expense .............................            40,000            61,000           (21,000)
             Data processing expenses ........................            62,000            66,000            (4,000)
             Printing and office supplies ....................            54,000            61,000            (7,000)
             Other ...........................................           318,000           334,000           (16,000)
                                                               -----------------  ---------------- -----------------
                                                               $       1,609,000   $     1,652,000  $        (43,000)
                                                               =================  ================ =================
</TABLE>

         The decrease in salaries and wages in 1997 is  attributable to the fact
that  severance pay for  terminated  employees  were incurred in 1996 but not in
1997.  The  increase in  equipment  and  occupancy  expense is  attributable  to
depreciation  on new equipment  acquired in 1997. The increase in accounting and
auditing  expense  in 1997  is  attributable  to the  engagement  of an  outside
consultant  to perform a review of the Company's  loan  portfolio in 1997 and an
increase in internal audit fees for outsourced audit services.  Decreases in all
other expenses  resulted from  management's  objective to  significantly  reduce
noninterest expense.

         Average total assets  decreased  $5,177,000 or 10.64% to $43,489,000 in
1997 as  compared  to  $48,666,000  in  1996.  Average  interest-earning  assets
decreased  9.21% in 1997 from 1996.  Loan demand was not as strong in 1997 as in
1996 as evidenced  by a loan to deposit  ratio of 73% in 1997 as compared to 75%
in 1996.  Average  loans  decreased  $4,512,000 or 14.17% in 1997 as compared to
1996

 Liquidity and Capital Resources

         Liquidity   management   involves   the   matching  of  the  cash  flow
 requirements  of customers  who may be either  depositors  desiring to withdraw
 funds or borrowers needing assurance that sufficient funds will be available to
 meet their  credit  needs and the  ability of the  Company and the Bank to meet
 those  needs.  The  Company  and the Bank seek to meet  liquidity  requirements
 primarily through  management of short-term  investments  (principally  Federal
 funds sold) and monthly  amortizing  loans.  Another source of liquidity is the
 repayment of maturing single payment loans. The Bank is a member of the Federal
 Home Loan  Bank of  Atlanta  and as such has the  ability  to  obtain  advances
 therefrom,  although the cost of such advances  exceed lower cost  alternatives
 such as deposits from the local  community.  The Bank had outstanding  advances
 from the Federal Home Loan Bank of Atlanta of  $1,075,000  at December 31, 1997
 at an  average  rate of 5.67%.  The Bank  also has the  ability  to borrow  and
 purchase Federal funds from other financial institutions on a short-term basis,
 if needed.

                                       24
<PAGE>



         The  liquidity  and capital  resources  of the Company and the Bank are
 monitored on a periodic basis by state and Federal regulatory  authorities.  As
 determined under guidelines  established by these regulatory  authorities,  the
 Bank's  liquidity  ratio at December 31, 1997 was considered  satisfactory.  At
 that  date,  the  Bank's  short-term  investments  were  adequate  to cover any
 reasonable  anticipated immediate need for funds. The Company and the Bank were
 aware of no  events or trends  likely to result in a  material  change in their
 liquidity. During 1997, the Company increased its capital by retaining earnings
 of $341,000.  After  recording an increase in capital of $8,000 for  unrealized
 gains  on  securities,  net of  taxes,  total  capital  increased  $349,000  to
 $3,283,000 from $2,934,000 at December 31, 1996.

     At December 31, 1997,  there were no outstanding  commitments for any major
capital expenditures.
         
         In  accordance  with risk  capital  guidelines  issued  by the  Federal
Reserve  Board,  the Bank is required  to  maintain a minimum  standard of total
capital to  weighted  risk  assets of 8%.  Additionally,  all member  banks must
maintain  "core" or "Tier 1" capital of at least 4% of total  assets  ("leverage
ratio").  Member banks operating at or near the 4% capital level are expected to
have  well-diversified  risks,  including no undue  interest rate risk exposure,
excellent control systems,  good earnings,  high asset quality, and well managed
on- and off-balance  sheet  activities;  and, in general,  be considered  strong
banking organizations with a composite 1 rating under the CAMEL rating system of
banks. For all but the most highly rated banks meeting the above conditions, the
minimum leverage ratio is to be 4% plus an additional 100 to 200 basis points.

         The following  table  summarizes the  regulatory  capital levels of the
Bank at December 31, 1997.
<TABLE>
<CAPTION>

                                                      Actual                     Required                     Excess
                                             -------------------------   -------------------------   -------------------------
                                               Amount       Percent         Amount      Percent         Amount      Percent
                                             -----------  ------------   -----------  ------------   -------------------------
                                                                          (Dollars in Thousands)
                                             ---------------------------------------------------------------------------------
               <S>                           <C>          <C>            <C>          <C>            <C>            <C>
               Leverage capital ............ $    3,729       8.24 %     $    1,810       4.00 %     $    1,919        4.24 %
               Risk-based capital:
                Core capital ...............      3,729      12.40            1,203       4.00            2,526        8.40
                Total capital ..............      4,114      13.68            2,406       8.00            1,708        5.68

</TABLE>

Year 2000 Issue Costs

         Based on estimates by management of the Company, the Company expects to
incur  approximately  $30,000  to  $50,000  to modify  its  information  systems
appropriately to accurately process information in the year 2000 and beyond. The
Company  continues  to  evaluate   appropriate  courses  of  corrective  action,
including  replacement  of  certain  systems  whose  associated  costs  would be
recorded as assets and amortized.  Management  expects that the costs to convert
the  Company's  information  systems  to year  2000  compliance  will not have a
material impact on the Company's consolidated financial statements.








                                       25
<PAGE>



 Average Balances and Net Income Analysis

         The  following  table sets forth the amount of the  Company's  interest
income or 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.  Federally tax-exempt
income is presented  on a  taxable-equivalent  basis  assuming a 34% Federal tax
rate.
<TABLE>
<CAPTION>

                                                                Year Ended December 31,
                          ----------------------------------------------------------------------------------------------------
                                        1997                              1996                              1995
                          ---------------------------------  --------------------------------  -------------------------------
                                                                (Dollars in Thousands)
                          ----------------------------------------------------------------------------------------------------
                                      Interest    Average               Interest    Average               Interest   Average
                           Average     Income/     Yield/     Average    Income/     Yield/    Average    Income/     Yield/
                           Balance     Expense    Rate        Balance    Expense    Rate       Balance    Expense    Rate
                                                    Paid                              Paid                             Paid
                          ----------- ----------  ---------  ---------- ----------  ---------  ---------  ---------  ---------
<S>                       <C>         <C>         <C>        <C>        <C>         <C>        <C>        <C>        <C>   
 ASSETS
    Interest-earning
    assets:
       Loans, net of
       unearned interest  $   27,336  $   2,698     9.87 %   $  31,848  $   3,118     9.79 %   $ 29,064   $  2,856     9.83 %
       Investment
       securities:
         Taxable ........      8,291        511     6.16         5,770        325     5.63        5,912        316     5.35
         Nontaxable                -          -        -             -          -        -            -          -        -
       Federal funds sold      3,128        173     5.53         5,068        275     5.43        3,307        182     5.50
                          ----------  ---------              ---------  ---------              --------   --------
         Total interest-
         earning assets .     38,755      3,382     8.73        42,686      3,718     8.71       38,283      3,354     8.76
                          ----------  ---------              ---------  ---------              --------   --------
    Noninterest-earning
       assets:
       Cash .............      2,953                             4,415                            4,180
       Allowance for loan
         losses .........    (1,201)                           (1,023)                            (421)
       Unrealized gain
       (loss)
         on available
         for sale securities      (3)                               (7)                             (41)
       Other assets .....      2,985                             2,595                            2,563
                         -----------                        ----------                        ---------
         Total
         noninterest-
         earning assets .      4,734                             5,980                            6,281
                         -----------                        ----------                        ---------

         Total assets ...$    43,489                        $   48,666                        $  44,564
                         ===========                        ==========                        =========


</TABLE>
                                       26
<PAGE>
<TABLE>
<CAPTION>




                                                                Year Ended December 31,
                           ---------------------------------------------------------------------------------------------------
                                         1997                             1996                             1995
                           --------------------------------- -------------------------------- --------------------------------
                                                                 (Dollars in Thousands)
                           ---------------------------------------------------------------------------------------------------
                                       Interest    Average              Interest   Average                Interest   Average
                            Average     Income/    Yield/     Average   Income/     Yield/     Average    Income/     Yield/
                            Balance     Expense   Rate Paid   Balance   Expense   Rate Paid    Balance    Expense    Rate
                                                                                                                       Paid
                           ----------- ---------- ---------- --------- ---------- ----------- ---------- ----------- ---------
<S>                        <C>         <C>        <C>        <C>       <C>        <C>         <C>        <C>         <C>  
LIABILITIES AND
   STOCKHOLDERS'
   EQUITY
   Interest-bearing
   liabilities:
      Savings and
        interest-bearing
        demand deposits .. $    8,198  $     227     2.77%   $    9,479 $    254     2.68%    $   9,870  $      275    2.79%
      Time deposits ......     22,259      1,280     5.75        25,209    1,541     6.11        22,784       1,368    6.00
      Other borrowings ...      2,275        139     6.11         2,433      136     5.59           326          17    5.21
                           ----------  ---------             ---------- --------              ---------  ----------
      Total
      interest-bearing
        liabilities ......     32,732      1,646     5.03        37,121    1,931     5.20        32,980       1,660    5.03
                           ----------  ---------             ---------- --------              ---------  ----------
   Noninterest-bearing 
   liabilities and stock-
   holders' equity:
      Demand deposits ....      7,190                             7,929                           7,209
      Other liabilities ..        458                               570                             490
      Stockholders' equity      3,109                             3,046                           3,885
                           ----------                        ----------                       ---------
      Total
      noninterest-bearing
        liabilities and
        stockholders' equity   10,757                            11,545                          11,584
                           ----------                       -----------                       ---------

Total liabilities and
stockholders'
   equity ................ $   43,489                       $    48,666                       $  44,564
                           ==========                       ===========                       =========

Interest rate spread .....                           3.70%                           3.51%                             3.73%
                                                  ========                        ========                          ========

Net interest income ......             $   1,736                        $  1,787                         $    1,694
                                       =========                        ========                         ==========

Net interest margin ......                           4.48%                           4.19%                             4.42%
                                                  ========                        ========                          ========


</TABLE>
                                       27
<PAGE>


Rate and Volume Analysis

         The  following  table  reflects  the  changes  in net  interest  income
resulting  from changes in interest  rates and from asset and liability  volume.
Federally  tax-exempt  interest  is  presented  on  a  taxable-equivalent  basis
assuming a 34% Federal tax rate. The change in interest attributable to rate has
been determined by applying the change in rate between years to average balances
outstanding  in the later year.  The change in  interest  due to volume has been
determined  by applying  the rate from the earlier year to the change in average
balances  outstanding  between years.  Thus,  changes that are not solely due to
volume have been consistently attributed to rate.
<TABLE>
<CAPTION>

                                                                        Year Ended December 31,
                                           ----------------------------------------------------------------------------------
                                                        1997 vs. 1996                             1996 vs. 1995
                                           ----------------------------------------  ----------------------------------------
                                                                        (Dollars in Thousands)
                                           ----------------------------------------------------------------------------------
                                             Increase         Changes Due To          Increase          Changes Due To
                                                         --------------------------                --------------------------
                                            (Decrease)        Rate        Volume     (Decrease)        Rate         Volume
                                           ------------- ------------- ------------  ------------  ------------  ------------
<S>                                        <C>           <C>           <C>           <C>           <C>           <C>
 Increase (decrease) in:
    Income from earning assets:
       Interest and fees on loans ........ $      (420)  $         22  $      (442)   $       262   $       (12)  $       274
       Interest on securities:
         Taxable .........................         186             44          142              9            17            (8)
         Tax-exempt                                  -              -            -              -             -             -
       Interest on Federal funds .........        (102)             3         (105)            93            (4)           97
                                           -----------   ------------  -----------   ------------   -----------   -----------
              Total interest income ......        (336)            69         (405)           364             1           363
                                           -----------   ------------  -----------   ------------   -----------   -----------

 Expense from interest-bearing liabilities:
    Interest on savings and interest-
       bearing demand deposits ...........         (27)             7          (34)           (21)          (10)          (11)
    Interest on time deposits ............        (261)           (81)        (180)           173            27           146
    Interest on other borrowings .........           3             12           (9)           119             9           110
                                           -----------   ------------  ------------  ------------   -----------  ------------
              Total interest expense .....        (285)           (62)        (223)           271            26           245
                                           -----------   ------------  -----------   ------------   -----------  ------------

              Net interest income ........ $       (51)  $        131  $      (182)  $         93   $      (25)  $        118
                                           ===========   ============  ===========   ============   ===========  ============

</TABLE>
                                       28

<PAGE>



Asset/Liability Management

         A  principal  objective  of the  Company's  asset/liability  management
strategy is to minimize  its  exposure to changes in interest  rates by matching
the   maturity   and   repricing   horizons  of   interest-earning   assets  and
interest-bearing  liabilities.  At FNC this strategy is overseen in part through
the  direction  of the  Investment  Committee  which  establishes  policies  and
monitors results to control interest rate sensitivity. At the Bank, the strategy
is overseen by the Board of Directors  with the  direction  and  strategy  being
directed principally by the President of the Bank.

         As part  of the  Banks'  interest  rate  risk  management  policy,  the
Investment  Committee  or Board  examines  the  extent to which its  assets  and
liabilities   are   "interest   rate-sensitive"   and   monitors   its  interest
rate-sensitivity  "gap".  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 adversely
affect net  interest  income,  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 adversely affect net interest income.
If the  Company's  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,  the  Investment  Committee or Board also evaluates 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 interest 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") which limit changes in interest
rates on a  short-term  basis and over the life of the asset.  In the event of a
change 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 in the
event of an interest rate increase.

         As of December 31, 1997,  the Company's  cumulative  one-year  interest
rate  sensitivity  gap  ratio  was  .94%.  This  indicates  that  the  Company's
interest-bearing  liabilities  will reprice  during this period at a rate faster
than the Company's  interest-earning  assets. However,  management believes that
the type and amount of the  Company's  interest  rate-sensitive  liabilities  (a
significant  portion of which are  composed  of money  market,  NOW and  savings
accounts  whose yields,  to a certain  extent,  are subject to the discretion of
management) may reduce the potential  impact that a rise in interest rates might
have on the  Company's  net  interest  income.  In  addition,  the  Company  has
borrowing  agreements with three  correspondent  banks and the Federal Home Loan
Bank to provide temporary liquidity as necessary.

                                       29
<PAGE>



         The following table sets forth the distribution of the repricing of the
Company's  earning  assets and  interest-bearing  liabilities as of December 31,
1997, the interest rate  sensitivity gap (i.e.,  interest rate sensitive  assets
less  interest  rate  sensitive  liabilities),   the  cumulative  interest  rate
sensitivity gap ratio (i.e.,  interest rate sensitive assets divided by interest
rate  sensitivity  liabilities)  and the cumulative  sensitivity gap ratio.  The
table also sets forth the time periods in which earning  assets and  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 since the repricing of various  categories
of assets and  liabilities is subject to competitive  pressures and the needs of
the Banks' 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>
                                                                                 At December 31, 1997
                                                          --------------------------------------------------------------------
                                                                             Maturing or Repricing Within
                                                          --------------------------------------------------------------------
                                                            Zero to        Three        One to         Over
                                                             Three       Months to       Three        Three
                                                            Months       One Year        Years        Years         Total
                                                          ------------  ------------  ------------ ------------- -------------
                                                                                (Dollars in Thousands)
                                                          --------------------------------------------------------------------
<S>                                                       <C>           <C>           <C>          <C>           <C>   
 Earning assets:
    Interest-bearing deposits ........................... $        33   $         -   $         -  $          -  $         33
    Federal funds sold ..................................          34             -             -             -            34
    Investment securities ...............................       1,223         1,753         3,523             -         6,499
    Loans ...............................................      11,974         5,768         7,584         6,354        31,680
                                                          ------------  ------------  ------------ ------------- -------------
                                                               13,264         7,521        11,107         6,354        38,246
                                                          ------------  ------------  ------------ ------------- -------------
 Interest-bearing liabilities:
    Interest-bearing demand deposits (1) ................           -         1,281         5,539             -         6,820
    Savings (1) .........................................           -             -         1,832             -         1,832
    Certificates less than $100,000 .....................       4,522         9,322         2,367           360        16,571
    Certificates, $100,000 and over .....................       1,809         3,228           747           333         6,117
    Other borrowings ....................................         930         1,010            20            45         2,005
                                                          ------------  ------------  ------------ ------------- -------------
                                                                7,261        14,841        10,505           738        33,345
                                                          ------------  ------------  ------------ ------------- -------------

 Interest rate sensitivity gap .......................... $     6,003   $   (7,320)   $       602  $      5,616  $      4,901
                                                          ============  ============  ============ ============= =============

 Cumulative interest rate sensitivity gap ............... $     6,003   $   (1,317)   $     (715)  $      4,901
                                                          ============  ============  ============ =============

 Interest rate sensitivity gap ratio ....................        1.83          0.51          1.06          8.61
                                                          ============  ============  ============ =============

 Cumulative interest rate sensitivity gap ratio .........        1.83          0.94          0.98          1.15
                                                          ============  ============  ============ =============
</TABLE>

(1)      The Company has found that NOW checking  accounts and savings  deposits
         are  generally  not  sensitive  to  changes  in  interest   rates  and,
         therefore,  it has placed such  liabilities in the "One to Three Years"
         category.  It has also found that the  money-market  checking  deposits
         reprice between three months to one year, on the average.



                                       30
<PAGE>



Loan Portfolio

         The amount of loans  outstanding at the indicated dates is shown in the
following table according to type of loans.
<TABLE>
<CAPTION>

                                                                                                   December 31,
                                                                                         ----------------------------------
                                                                                               1997               1996
                                                                                         ---------------    ---------------
                                                                                              (Dollars in Thousands)
                                                                                         ----------------------------------

       <S>                                                                               <C>                <C>           
       Commercial and financial .......................................................  $        4,559     $        5,100
       Agricultural ...................................................................           2,369              2,971
       Real estate - construction .....................................................           1,658                811
       Real estate - mortgage, farmland ...............................................           4,683              2,764
       Real estate - mortgage, other ..................................................          14,451             10,290
       Consumer instalment ............................................................           3,960              5,409
                                                                                         ---------------    ---------------
                                                                                                 31,680             27,345
       Allowance for loan losses ......................................................         (1,159)            (1,520)
                                                                                         ---------------    ---------------
       Loans, net .....................................................................  $       30,521     $       25,825
                                                                                         ===============    ===============
</TABLE>

Maturities and Sensitivity of Loans to Changes in Interest Rates

         The  Company's  loan  portfolio,  as of December 31, 1997,  was made up
primarily of  short-term  fixed rate loans or variable  rate loans.  The average
contractual  life on  instalment  loans  is  approximately  three  years,  while
mortgages are generally variable over one-to five-year  periods.  Total loans as
of December 31, 1997 are shown in the following  table  according to contractual
maturity classifications: (i) one year or less, (ii) after one year through five
years, and (iii) after five years.
                                                    December 31,
                                                        1997
                                                   (Dollars in
                                                     Thousands)
                                               -------------------
 Maturity:
  One year or less ........................... $           12,607
  After one year through five years ..........             14,782
  After five years ...........................              4,291
                                               -------------------
                                               $           31,680
                                               ===================

         Following is a summary of loans which presents separately the amount of
loans  outstanding  as of December  31, 1997 in each  category  listed  above by
maturities.
<TABLE>
<CAPTION>

                                        
                                                                          Due in      After One       After
                                                                            One        Through         Five
                                                                           Year       Five Years      Years         Total
                                                                        ------------ ------------- ------------- -------------
                                                                                       (Dollars in Thousands)
                                                                        ------------------------------------------------------

          <S>                                                           <C>          <C>           <C>           <C>         
          Commercial, financial and agricultural ...................... $     4,226  $      1,896  $        807  $      6,929
          Real estate - construction ..................................       1,351           192           115         1,658
          Real estate - mortgage ......................................       5,494        10,282         3,358        19,134
          Consumer instalment .........................................       1,536         2,412            11         3,959
                                                                        ------------ ------------- ------------- -------------
                  Total ............................................... $    12,607  $     14,782  $      4,291  $     31,680
                                                                        ============ ============= ============= =============
</TABLE>

                                       31

<PAGE>



         The following table  summarizes loans at December 31, 1997 with the due
dates after one year which (i) have  predetermined  interest rates and (ii) have
floating or adjustable interest rates.

                                                           December 31,
                                                              1997
                                                           (Dollars in
                                                            Thousands)
                                                        ----------------

    Predetermined interest rates ...................... $        13,820
    Floating or adjustable interest rates .............           5,253
                                                        ----------------
                                                        $        19,073
                                                        ================


Nonperforming Loans

        The following table presents,  at the dates indicated,  the aggregate of
nonperforming loans for the categories indicated.
<TABLE>
<CAPTION>
                                                                                                     December 31,
                                                                                           ----------------------------------
                                                                                                 1997              1996
                                                                                           ---------------   ----------------
                                                                                                (Dollars in Thousands)
                                                                                           ----------------------------------

       <S>                                                                                 <C>               <C>            
       Loans accounted for on a nonaccrual basis ......................................... $          801    $         1,038

       Instalment loans and term loans contractually past due ninety
          days or more as to interest or principal payments and still accruing ...........              6                  5

       Loans, the term of which have been renegotiated to provide a reduction or
          deferral of interest or principal because of
          deterioration in the financial position of the borrower ........................              -                  -

       Loans now current about which there are serious doubts as to
          the ability of the borrower to comply with present loan
          repayment terms ................................................................              -                  -

         In the  opinion  of  management,  any loans  classified  by  regulatory
authorities as substandard or special mention that have not been disclosed above
do not (i)  represent or result from trends or  uncertainties  which  management
reasonably expects will materially impact future operating results, liquidity or
capital resources, nor (ii) 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. Any loans
classified by regulatory authorities as loss have been charged off.
</TABLE>
                                       32

<PAGE>



Summary of Loan Loss Experience

         The provision for possible loan losses is created by direct  charges to
operations.  Losses on loans are charged  against the allowance in the period in
which such loans,  in management's  opinion,  become  uncollectible.  Recoveries
during the period are credited to this  allowance.  The factors  that  influence
management's judgment in determining the amount charged to operating expense are
past loan experience,  composition of the loan portfolio, evaluation of possible
future losses,  current  economic  conditions and other  relevant  factors.  The
Company's allowance for loan losses was approximately $1,159,000 at December 31,
1997,  representing  3.66% of year-end  total loans  outstanding  compared  with
approximately  $1,520,000 at December 31, 1996, which represented 5.56% year end
total loans outstanding.

         The  allowance  for  loan  losses  is  reviewed   quarterly   based  on
management's  evaluation of current risk  characteristics of the loan portfolio,
as well as the impact of prevailing and expected economic  business  conditions.
Management  considers the allowance for loan losses  adequate to cover  possible
loan losses on each  outstanding  loan with  particular  emphasis on any problem
loans. No assurance can be given, however,  that adverse economic  circumstances
will not result in increased  losses in the Bank's loan  portfolio,  and require
greater provisions for loan losses in the future.

Allocation of the Allowance for Loan Losses

         The following  table sets forth the breakdown of the allowance for loan
losses by loan  category  for the periods  indicated.  Management  believes  the
allowance can be allocated only on an approximate  basis.  The allocation of the
allowance to each  category is not  necessarily  indicative of future losses and
does not  restrict  the use of the  allowance  to  absorb  losses  in any  other
category.
<TABLE>
<CAPTION>

                                                                                      At December 31,
                                                                -------------------------------------------------------------
                                                                            1997                           1996
                                                                ------------------------------ ------------------------------
                                                                                  Percent of                     Percent of
                                                                                   Loans in                       Loans in
                                                                                 Category to                     Category to
                                                                     Amount      Total Loans        Amount       Total Loans
                                                                ---------------- ------------- ----------------  ------------
                                                                                   (Dollars in Thousands)
                                                                --------------------------------------------------------------

 <S>                                                            <C>               <C>          <C>                <C> 
 Commercial, financial, industrial and agricultural ........... $           256         22 %   $           449         30 %
 Real estate ..................................................             325         66                 770         50
 Consumer .....................................................             404         12                 301         20
 Unallocated ..................................................             174          -                   -          -
                                                                ---------------- ------------- ----------------  ------------
                                                                $         1,159        100 %   $         1,520        100 %
                                                                ================ ============= ================  ============
</TABLE>
                                       33


<PAGE>



Allocation of the Allowance for Loan Losses (Continued)

         The following  table  presents an analysis of the  Company's  loan loss
experience for the periods indicated:
<TABLE>
<CAPTION>

                                                                                                     December 31,
                                                                                           ---------------------------------
                                                                                                1997               1996
                                                                                           ---------------   ---------------
                                                                                                (Dollars in Thousands)
                                                                                           ---------------------------------
       <S>                                                                                 <C>               <C>           
       Average amount of loans outstanding ............................................... $       27,336    $       31,848
                                                                                           ===============   ===============

       Balance of reserve for possible loan losses at beginning of period ................          1,520               385
                                                                                           ---------------   ---------------

       Charge-offs:
          Commercial, financial and agricultural .........................................           (152)             (397)
          Real estate ....................................................................           (250)             (501)
          Consumer .......................................................................           (270)             (552)
       Recoveries:
          Commercial, financial and agricultural .........................................             60                24
          Real estate ....................................................................            127                 6
          Consumer .......................................................................             94               250
                                                                                           ---------------   ---------------
               Net charge-offs ...........................................................           (391)           (1,170)
                                                                                           ---------------   ---------------

       Additions to reserve charged to operating expenses ................................             30             2,305
                                                                                           ---------------   ---------------

       Balance of reserve for possible loan losses ....................................... $        1,159    $        1,520
                                                                                           ===============   ===============

       Ratio of net loan charge-offs to average loans ....................................          1.43%             3.67%
                                                                                           ===============   ===============
</TABLE>
                                       34

<PAGE>


Investment Portfolio

         The Company  manages the mix of asset and  liability  maturities  in an
effort to control the effects of changes in the general level of interest  rates
on net interest  income.  See " -  Asset/Liability  Management."  Except for its
effect  on the  general  level  of  interest  rates,  inflation  does not have a
material  impact  on the  Company  due to the rate  variability  and  short-term
maturities of its earnings assets. In particular,  approximately 56% of the loan
portfolio is comprised of loans which mature or reprice within one year or less.
Mortgage loans, primarily with five- to fifteen-year  maturities,  are also made
on a variable  rate basis with rates  being  adjusted  every one to five  years.
Additionally, 46% of the investment portfolio matures within one year.

Types of Investments

         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, 1997:
                           U. S. Government and agency
                             securities .................. $     6,010,722   $      16,702  $       (1,602)  $     6,025,822
                           Other investments .............         473,600               -                -          473,600
                                                           ----------------  -------------- ---------------- ----------------
                                                           $     6,484,322   $      16,702  $       (1,602)  $     6,499,422
                                                           ================  ============== ================ ================

                        December 31, 1996:
                           U. S. Government and agency
                             securities .................. $     7,217,273   $       8,431  $       (9,658)  $     7,216,046
                           Mortgage-backed securities ....         150,753           3,727                -          154,480
                           Other investments .............         458,600               -                -          458,600
                                                           ----------------  -------------- ---------------- ----------------
                                                           $     7,826,626   $      12,158  $       (9,658)  $     7,829,126
                                                           ================  ============== ================ ================
</TABLE>
                                       35




<PAGE>



Maturities

         The amounts of  investment  securities  in each category as of December
31, 1997 are shown in the  following  table  according to  contractual  maturity
classifications (1) one year or less, (2) after one year through five years, (3)
after five years through ten years, and (4) after ten years.
<TABLE>
<CAPTION>

                                                                    U.S. Treasury and
                                                                  Other U. S. Government                 State and
                                                                Agencies and Corporations         Political Subdivisions
                                                                                   Yield                           Yield
                                                                 Amount             (1)           Amount          (1) (2)
                                                               ------------     ------------    ------------    ------------
                                                                                  (Dollars in Thousands)
                                                               -------------------------------------------------------------
 <S>                                                           <C>              <C>             <C>             <C>    
 Maturity:
    One year or less ......................................... $     2,976         5.86 %       $         -            - %
    After one year through five years ........................       3,523         6.03                   -            -
    After five years through ten years .......................           -            -                   -            -
    After ten years ..........................................           -            -                   -            -
                                                               ------------     ------------    ------------    ------------
                                                               $     6,499         5.98 %       $         -            - %
                                                               ============     ============    ============    ============
</TABLE>

(1)      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.  The weighted  average  yield for each
         maturity  range  was  computed  using  the  acquisition  price  of each
         security in that range.

(2)      Yields on securities of state and political subdivisions are stated on
         a taxable equivalent basis using a tax rate of 34%.

                                       36
<PAGE>



Deposits

         Average amount of deposits and average rate paid thereon, classified as
to  noninterest-bearing  demand  deposits,  interest-bearing  demand and savings
deposits and time deposits for the periods indicated are presented below.
<TABLE>
<CAPTION>

                                                                                    Year Ended December 31,
                                                                  ------------------------------------------------------------
                                                                              1997                           1996
                                                                  -----------------------------  -----------------------------
                                                                       Amount         Rate            Amount         Rate
                                                                  ---------------  ------------  ---------------  ------------
                                                                                    (Dollars in Thousands)
                                                                  ------------------------------------------------------------

 <S>                                                              <C>                  <C>       <C>                  <C> 
 Noninterest-bearing demand deposits ............................ $        7,190          - %    $        7,929          - %
 Interest-bearing demand and savings deposits ...................          8,198       2.77               9,479       2.68
 Time deposits ..................................................         22,259       5.75              25,209       6.11
                                                                  ---------------                ---------------
               Total deposits ................................... $       37,647                 $       42,617
                                                                  ===============                ===============
</TABLE>

        The Company has a large, stable base of time deposits, with little or no
dependence  on volatile  deposits of $100,000  or more.  The time  deposits  are
principally  certificates of deposit and individual retirement accounts obtained
from individual customers.

         The  amounts  of time  certificates  of  deposit  issued in  amounts of
$100,000 or more as of December 31, 1997, are shown below by category,  which is
based on time remaining  until  maturity of (i) three months or less,  (ii) over
three through twelve months and (iii) over twelve months.

                                                        December 31,
                                                           1997
                                                     ----------------
                                                        (Dollars in
                                                          Thousands)
                                                     ----------------

    Three months or less ........................... $         1,809
    Over three through twelve months ...............           3,228
    Over twelve months .............................           1,080
                                                     ----------------
    Total .......................................... $         6,117
                                                     ================


                                       37
<PAGE>


Return on Assets and Stockholders' Equity

         The  following  table shows  return on assets  (net  income  divided by
average  total  assets),  return  on  equity  (net  income  divided  by  average
stockholders'  equity),  dividend  payout  ratio  (dividends  declared per share
divided  by net  income  per  share)  and  stockholders'  equity to asset  ratio
(average  stockholders'  equity divided by average total assets) for the periods
indicated.
<TABLE>
<CAPTION>

                                                                                                 Year Ended December 31,
                                                                                           ------------------------------------
                                                                                                1997                1996
                                                                                           ----------------    ----------------

<S>                                                                                        <C>                 <C>     
 Return on assets .........................................................................        0.78 %            (2.35) %

 Return on equity .........................................................................       10.97             (37.62)

 Dividends payout .........................................................................           -                   -

 Equity to assets ratio ...................................................................        7.15                6.26

</TABLE>

Commitments and Lines of Credits

         In the ordinary course of business, the Bank has granted commitments to
extend credit to approved  customers.  Generally,  these  commitments  to extend
credit  have been  granted  on a  temporary  basis  for  seasonal  or  inventory
requirements and have been approved by the Bank's Board of Directors.  The Banks
have also  granted  commitments  to approved  customers  for standby  letters of
credit.  These  commitments are recorded in the financial  statements when funds
are disbursed or the financial  instruments  become  payable.  The Bank uses the
same credit  policies for these  off-balance  sheet  commitments  as they do for
financial   instruments  that  are  recorded  in  the   consolidated   financial
statements.   Commitments   generally  have  fixed  expiration  dates  or  other
termination  clauses  and may  require  payment  of a fee.  Because  many of the
commitment amounts expire without being drawn upon, the total commitment amounts
do not necessary represent future cash requirements.

         Following is a summary of the  commitments  outstanding at December 31,
1997 and 1996.
<TABLE>
<CAPTION>

                                                                                                     December 31,
                                                                                           ----------------------------------
                                                                                                 1997               1996
                                                                                           ---------------    ---------------
                                                                                                (Dollars in Thousands)
                                                                                           ----------------------------------

           <S>                                                                             <C>                <C>           
           Commitments to extend credit .................................................  $        4,746     $        4,655
           Standby letters of credit ....................................................              12                 16
                                                                                           ---------------    ---------------
                                                                                           $        4,758     $        4,671
                                                                                           ===============    ===============
</TABLE>


                                       38
<PAGE>


Impact of Inflation

         The  consolidated   financial   statements  and  related   consolidated
financial data presented  herein have been prepared in accordance with generally
accepted  accounting  principles and practices within the banking industry which
require the measurement of financial  position and operating results in terms of
historical  dollars without  considering the changes in the relative  purchasing
power of money over time due to  inflation.  Unlike most  industrial  companies,
virtually all the assets and liabilities of a financial institution are monetary
in  nature.  As a result,  interest  rates have a more  significant  impact on a
financial  institution's  performance  than the  effects  of  general  levels of
inflation.


ITEM 7.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The following  consolidated financial statements of the Company and its
subsidiaries  are  included on pages F-1 through  F-32 of this Annual  Report on
Form 10-KSB:

     Consolidated Balance Sheets - December 31, 1997 and 1996

     Consolidated Statements of Income - Years Ended December 31, 1997 and 1996

     Consolidated Statements of Stockholders' Equity - Years Ended December 31,
     1997 and 1996

     Consolidated Statements of Cash Flows - Years Ended December 31, 1997 and
     1996

     Notes to Consolidated Financial Statements.


ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON                     
         ACCOUNTING AND FINANCIAL DISCLOSURE

         On August 15, 1997, the Company's Board of Directors elected to dismiss
Stewart,  Fowler & Stalvey,  P.C. as the  Company's  independent  auditors.  The
report of Stewart,  Fowler & Stalvey,  P.C. accompanying the Company's financial
statements  as of and for the years ended  December  31, 1996 and 1995,  did not
contain an adverse  opinion,  or a disclaimer  of opinion,  and was not modified
with respect to uncertainty, audit scope or accounting principles.

         On August 15,  1997,  the  Company  engaged  Mauldin & Jenkins,  LLC of
Albany,  Georgia as its new certifying  accountant.  The Company did not consult
with Mauldin & Jenkins,  LLC regarding the application of accounting  principles
to a specific completed or contemplated transaction or the type of audit opinion
that might be rendered on the Company's financial statements.

         The decision of the Company to engage new  certifying  accountants  was
approved  by its Board of  Directors.  There  were,  during the two most  recent
fiscal years of the Company and for the period of January 1, 1997 through August
15, 1997, no disagreements, whether resolved or unresolved, with Stewart, Fowler
& Stalvey, P.C. with regard to any matter of accounting principles or practices,
financial statement  disclosure,  or auditing scope or procedure,  which, if not
resolved to its satisfaction would have caused Stewart,  Fowler & Stalvey,  P.C.
to make  reference to the subject  matter of the  disagreement(s)  in connection
with its report.

                                       39
<PAGE>

                                    PART III

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


DIRECTORS

         The members of the Board of Directors of the Company are elected by the
shareholders.  The  directorships of the Company are divided into three classes,
with the members of each class serving  three-year terms and the shareholders of
the Company elect one class annually.

         The following  table and  accompanying  notes sets forth the name, age,
business  experience  during  the past five  years,  the year he first  became a
director  and the year in which  his  current  term  will  expire of each of the
Directors of the Company as of December 31, 1997.
<TABLE>
<CAPTION>

                                                                                                                Director's
                                                                                                   Director        Term
                      Name                      Age                     Position                    Since         Expires
       -----------------------------------  ------------- -------------------------------------  ------------- --------------

       <S>                                  <C>           <C>                                    <C>           <C>    
       Board Nominees:
          William C. Ellis, Jr.                  53       Director                                   1990          1998
          Ralph G. Evans                         41       Director                                   1990          1998

       Directors Continuing in Office:
          A. Curtis Farrar, Jr.                  53       Director                                   1990          1999
          Norman E. Fletcher                     60       Director                                   1990          1999
          Milton G. Clements                     49       Director                                   1990          2000
          Robert L. Cation                       53       Chairman of the Board of Directors         1990          2000
          Jeffery W. Johnson                     48       Director                                   1997          2000
</TABLE>

Executive Officers

         The following table and accompanying  notes set forth the name, age and
business  experience  during  the past  five  years of  individuals  who are the
executive  officers of the Company and the Bank and all persons chosen to become
executive officers.
<TABLE>
<CAPTION>

           Name                     Age                              Position with the Company and the Bank
---------------------------    --------------      --------------------------------------------------------------------------

<S>                            <C>                 <C>                                     
Robert L. Cation                    53             Chairman of the Board of FNC Bancorp, Inc.
                                                   Chairman of the Board of First National Bank of Coffee County

Jeffery W. Johnson                  48             President and CEO of FNC Bancorp, Inc.
                                                   President and CEO of First National Bank of Coffee County

Al D. Ross                          34             Executive Vice President of First National Bank of Coffee County

Leonard W. Thomas                   37             Senior Vice President and CFO of First National Bank of Coffee County

Ralph G. Evans                      41             Secretary of FNC Bancorp, Inc.
</TABLE>
                                       40


<PAGE>



Business Experience

         Effective  May 15,  1997,  Jeffery W. Johnson was employed as President
and CEO of the  Company  and the Bank as well as elected  as a  director  of the
Bank. Mr. Johnson has twenty-five years experience in banking.  He most recently
served as President of First State Bank in Cordele,  Georgia, a position he held
for ten years.  Prior to his tenure with First State Bank, Mr. Johnson served as
CEO of Commercial State Bank, Donalsonville, Georgia, as a Vice President of the
Bank of Perry, Perry, Georgia and as a Banking Officer at C & S National Bank in
Athens, Georgia. Mr. Johnson is a native of Soperton, Georgia, a graduate of the
University of Georgia and the School of Banking at Louisiana  State  University.
He has served as a directory  of the Small  Business  Administration's  Advisory
Board,  is a past President of the Cordele Chamber of Commerce and is a delegate
to the 1998 Congressional Conference on Small Business.

         Al D. Ross is Executive Vice President of First National Bank of Coffee
County. His  responsibilities  include supervision of the Bank's lending area as
well as the Bank's loan processing and operation area. He came to First National
Bank  with  over  11  years  of  banking  experience  primarily  in  commercial,
agricultural  and mortgage  lending.  He is actively  involved in community  and
civic affairs  through his memberships in the  Douglas-Coffee  County Chamber of
Commerce and Douglas Rotary Club.

         Leonard W. Thomas is Senior Vice  President  and CFO of First  National
Bank of Coffee County. His  responsibilities  include  supervision of the Bank's
investment,  bookkeeping and accounting operations. He has over 12 years of bank
audit  and  management  experience  and  is on  the  Steering  Committee  of the
Community Bankers Association's Financial Manager's Forum.

         Robert L.  Cation is an  Organizer  of the  Company  and the Bank.  Mr.
Cation also is the  Chairman of the Board of Directors of the Company and serves
as Chairman of the Board of Directors of the Bank.  Since 1970,  Mr.  Cation has
owned and operated Cation Food Stores, Inc., a retail grocery operation in south
Georgia,  where he  serves  as  President  and is  responsible  for the  overall
management of the  corporation.  Mr. Cation served as a director for Bank South,
Douglas (and as a director for The Exchange Bank of Douglas,  the predecessor of
Bank South, Douglas) from 1983 until June 1990.

         Milton G.  Clements is an  Organizer  of the Company and the Bank.  Mr.
Clements  also is a Director of the Company and the Bank.  He is  President  and
managing  principal of  Clements,  Purvis & Stewart,  P.C.,  a Certified  Public
Accounting firm in Douglas, Georgia. He has served as the 2nd Vice President and
a  director  of the  Douglas-Coffee  County  Chamber  of  Commerce  as well as a
director of the Douglas Downtown Development Authority. Mr. Clements is a member
of the Douglas Lions Club where he has held all the primary  officer  positions,
as well as a member of the Georgia Society and the American Institute of CPA's.

     William C. Ellis,  Jr. is an  Organizer  of the  Company and the Bank.  Mr.
Ellis also is a Director of the Company  and the Bank.  Mr.  Ellis has served as
President of ESCO  Industries,  Inc., a  manufacturing  corporation  with branch
locations in Asheboro,  North Carolina and Lakeland,  Florida. In addition,  Mr.
Ellis serves as  Secretary-Treasurer  of Diversified Polymer  Industries,  Inc.,
Dalton, Georgia. Mr. Ellis' professional  involvement includes membership in the
Georgia  Manufactured  Housing  Association,  the  Coffee  County  Manufacturers
Council and the Douglas-Coffee County Chamber of Commerce.  From 1984 until June
1990,  he served as a  director  and a member of the Audit  Committee  for Trust
Company Bank of Coffee County.
                                       41
<PAGE>



     Ralph G. Evans is an Organizer of the Company and the Bank.  Mr. Evans also
is a Director and the  Secretary  of the Company and  Director of the Bank.  Mr.
Evans serves as President of both R. W. Griffin Feed, Seed & Fertilizer, Inc., a
farming and farm supply retail store, and Douglas Peanut and Grain Co. Mr. Evans
also  serves  as a  director  of  Chem  Nut,  Inc.,  an  Albany,  Georgia  based
publicly-held  ag-chemical  distribution  company  with  annual  sales  of  $120
million.  Mr.  Evans  previously  served as a director of the  Downtown  Douglas
Development Authority.

         A. Curtis Farrar,  Jr. is an Organizer of the Company and the Bank. Mr.
Farrar also is a Director of the Company and the Bank.  He is  presently  Senior
Partner  with the law firm of Farrar and  Hennesy.  Since 1973,  Mr.  Farrar has
served as a Juvenile Court Judge in Douglas and is presently serving as chairman
of the Georgia Board of Natural Resources.  From 1987 to 1989, Mr. Farrar served
on the Georgia Governor's Task Force on Drug Awareness and Prevention.

     Norman E.  Fletcher  is an  Organizer  of the  Company  and the  Bank.  Mr.
Fletcher  also is a Director  of the Company and the Bank.  He is  President  of
Fletcher Oil Company and Floco,  Inc. all of which are wholesale oil  companies.
He also serves as President of Quick  Change,  Inc.  convenience  store chain in
south Georgia. Mr. Fletcher is an active member,  deacon and Gideon of the First
Baptist Church in Douglas, and since January 1990, has served ad Chairman of the
Job Training Program in the area.
        
     Unless stated otherwise,  each of the above-named  persons has been engaged
in his or her present occupation for more than the past five years.

         There are no family relationships among directors,  executive officers,
or persons  nominated  or chose by the Company to become  directors or executive
officers.


                                       42
<PAGE>



ITEM 10. COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS

Executive Compensation

         The  Company  does  not  separately  compensate  any of  its  executive
officers.  The following table sets forth the annual and long-term  compensation
paid to the Company's and the Bank's Chief Executive Officer for the most recent
and previous two fiscal years and to each  executive  officer of the Company and
the Bank whose cash compensation exceeded $100,000 during 1997.
<TABLE>
<CAPTION>

                                                                                       Long-Term Compensation
                                                                        ------------------------------------------------------
                                      Annual Compensation                      Awards                Payouts
                                 -------------------------------------- --------------------------  -----------
                                                             Other      Restricted    Securities
         Name                                               Annual         Stock      Underlying       LTP        All Other
       Principal                   Salary      Bonus     Compensation    Award(S)      Options       Payouts     Compensation
       Position           Year      ($)         ($)         ($) (1)         ($)        SARS (#)        ($)           ($)
------------------------ ------- ----------- ----------- -------------- ------------ -------------  -----------  -------------

<S>                       <C>    <C>         <C>         <C>            <C>          <C>            <C>          <C>         
Jeffery W. Johnson        1997   $   72,000  $        -  $           -  $         -    14,640       $        -   $        772
   President  and CEO
   of FNC Bancorp, Inc.
   and First National
   Bank
   of Coffee  County

Timothy J. Palmer (2)     1996       71,186           -              -            -         -                -              -
   President and          1995       90,000      13,950              -            -     3,642(3)             -              -
   CEO of FNC
   Bancorp, Inc. and
   First National Bank
   of Coffee County
</TABLE>

(1)      Compensation  does not  include  any  perquisites  and  other  personal
         benefits which may be derived from  business-related  expenditures that
         in the  aggregate  do not  exceed  the  lesser of $50,000 or 10% of the
         total annual salary and bonuses reported for such person.

(2)      Mr.  Palmer left the Company on May 19,  1996.  Jeffery W.  Johnson  
         began  employment  April 1, 1997 and was elected
         President and CEO of the Bank and the Company on May 15, 1997.

(3) Transferred to other Directors as of December 31, 1996.

                                       43
<PAGE>



         Until Mr. Palmer's  resignation on May 19, 1996, his  compensation  was
governed by an employment  agreement which became effective January 1, 1995. The
1995  employment  agreement  provided  Mr.  Palmer with a base salary of $90,000
annually. The 1995 employment agreement also provided for incentive compensation
in the form of  bonuses  to be paid to Mr.  Palmer  should  certain  performance
levels related to asset growth and  profitability be achieved as well as various
fringe benefits.  Following Mr. Palmer's resignation on May 19, 1996, the Board,
in recognition of is past service,  voted to pay his salary for three additional
three (3) months and to continue his health, life and disability insurance until
December 31, 1996 or until Mr. Palmer  secures other  employment,  whichever was
sooner.

         Upon Mr.  Palmer's  resignation,  Mr. Robert L. Cation was elected to
serve as interim  President and CEO. Mr. Cation received no compensation for
his services in that capacity.

         The Board of  Directors,  after  consulting  with others in the banking
industry and legal counsel  negotiated an employment  agreement  with Jeffery W.
Johnson  which  commenced  on April 1, 1997 and will  continue for a term ending
April 30, 2000.  Thereafter such employment agreement will continue from year to
year unless and until  terminated by either party. The Board of Directors relied
upon  information  pertaining to comparable CEO  compensation in the industry as
well as its determination of the value of Mr. Johnson's  previous  experience in
determining a fair and  reasonable  compensation  package for Mr. Johnson as set
forth  in the  new  employment  agreement.  The  terms  and  conditions  of such
employment agreement are summarized described below.

Employment Agreement

         The employment agreement (the "Agreement")  provides Mr. Johnson with a
base salary of $96,000 annually during the initial term of the Agreement.  After
the initial  fiscal year,  the base salary may be increased at the discretion of
the Board. The Agreement also provides for incentive compensation in the form of
bonuses to be paid to Mr. Johnson should certain  performance  levels related to
profitability  be achieved.  Mr.  Johnson may receive a bonus equal to fifty per
cent (50%) of the amount by which the  Company's  net income  exceeds  return on
equity benchmarks determined as set forth in the Agreement. The return on equity
benchmark for the 1997 fiscal year is 9.5%. For subsequent  years, the benchmark
will be  determined  by the  Board  of  Directors  or a  compensation  committee
thereof.  These bonuses are capped at $35,000 for the first fiscal year, $45,000
for the second fiscal year and $50,000 for the third fiscal year. Mr. Johnson is
afforded  the right under the  Agreement  to elect to receive the amount of such
incentive  bonus in the form of  non-qualified  stock options  provided that the
total number of stock options issued under this election shall not exceed 25,000
shares. As an additional inducement to Mr. Johnson to accept employment with the
Bank,  the Company has agreed to issued stock  options for 25,000  shares of the
first  two years of  employment  and 8,334 in the  third  year.  All such  stock
options  will  provide for a strike price of $10 per share and shall have a term
of seven  years  after  the date of  issuance  or  vesting,  as  applicable.  In
addition,  Mr.  Johnson will  receive a one-time  cash bonus of $10,000 upon his
brining the Bank to an overall "2" rating with the Office of the  Comptroller of
the Currency.


                                       44
<PAGE>



         Upon Mr.  Palmer's  resignation,  the  remaining  directors of the Bank
purchased  from Mr. Palmer 5,000 shares of common stock and Mr.  Palmer's  stock
options for 10,926  shares in the Company.  As an  additional  inducement to Mr.
Johnson to become  employed by the Company and the bank,  each of the  directors
agreed to assign to Mr.  Johnson their portion of these stock options for 10,926
shares provided that he exercises one-half of these options within twelve months
of this employment and the remaining half within twenty-four  months. If he does
not exercise  these options within the required  times,  they will revert to the
directors.  If Mr. Johnson  acquired all of the shares of stock available to him
by stock option  under his  employment  agreement or from the Bank's  directors,
then he would own 65,926  shares of the  Company's  stock which would  represent
14.1% of the issued and outstanding  stock of the Company assuming that no other
holder of options  or  warrants  exercised  their  rights to acquire  additional
stock.

         The  Agreement  also  provides for  hospitalization  and major  medical
insurance coverage for Mr. Johnson;  term life insurance;  disability insurance;
an  automobile;  membership  in a social club  suitable for  conducting  banking
business  and  reimbursement  for expenses  incurred on behalf of the Bank.  The
Agreement  also  provides  $3,000 in  reimbursement  of the cost of  moving  his
household goods to Douglas, Georgia. In lieu of a cash payment for reimbursement
for duplicate housing while Mr. Johnson sells his home in Cordele,  the Bank has
made a house it purchased at foreclosure  available for Mr.  Johnson's use until
he  secures  permanent  housing  in  Douglas  or until a buyer for that house is
obtained.

         The Agreement  will provide that, if the Bank  terminates the Agreement
without cause during the first three years of its term, Mr. Johnson will receive
severance  pay equal to twelve  months base salary.  In the event of a change in
control of the Bank, Mr.  Johnson will receive  severance pay equal to two years
base salary unless he is offered equivalent  employment with the acquiring party
and remains employed in such capacity for at least six months.

         In addition,  the  employment  agreement  will  provide that  following
termination of his employment  with the Bank, Mr. Johnson will not engage in any
banking  activities in which he was engaged at the time of his employment within
a fifty  mile  radius of  Douglas,  Georgia  for a period of one year  following
termination.

Other Executive Compensation

         With respect to compensation paid to executive  officers other than the
CEO, the Board of Directors  has offered  competitive  salaries in comparison to
market practices when hiring.  Subsequent  raises are based upon a comparison of
current  market  conditions  and  management's   subjective   valuation  of  job
performance.  The Bank paid  bonuses to certain  executive  officers in December
1996. These bonuses were based upon an evaluation of the job performance of each
individual  executive  officer  as  well  as  a  comparison  of  current  market
conditions.  Subject to  shareholder  approval of a stock option plan, the Board
does  intend to award  stock  options  in the future to  certain  key  executive
officers  as an  incentive  to job  performance.  The Board  will also  consider
additional cash bonuses for certain executive officers again in consideration of
job performance and market conditions.

Director Compensation

         Currently, directors are reimbursed for expenses in connection with the
performance of their duties but receive no directors' fees.


                                       45
<PAGE>



         The following  table sets forth  certain  information  concerning  each
grant of options to purchase  the  Company's  common  stock made during the 1997
fiscal year to the persons named in the Summary Compensation Table.
<TABLE>
<CAPTION>

                                                                         Individual Grants
                                           ------------------------------------------------------------------------------
                                                                  % of Total
                                            Number of               Options
                                              Shares              Granted to
                                            Underlying             Employees            Exercise or
                                             Options               in Fiscal             Base Price          Expiration
                  Name                     Granted (#)               Year                  ($/SH)               Date
       ----------------------------        -------------        ----------------       ---------------       ------------

       <S>                                 <C>                  <C>                    <C>                   <C> 
       Jeffery W. Johnson                        39,640                 100%           $           10           2007
</TABLE>

         The  following  table  sets forth  certain  information  regarding  the
exercise of stock  options in the 1996  fiscal  year by the person  named in the
Summary  Compensation  Table and the Value of options held by such person at the
end of such fiscal year.
<TABLE>
<CAPTION>


                                Shares                          Number of Securities             Value of Unexercised
                             Acquired on      Value (1)        Underlying Unexercised            In-The-Money Options
             Name            Exercise (#)   Realized ($)      Options at Year End (#)             at Year End ($) (2)
     ---------------------  --------------- -------------- -------------------------------  --------------------------------
                                                            Exercisable    Unexercisable      Exercisable    Unexercisable
                                                           --------------- ---------------  ---------------- ---------------


     <S>                     <C>            <C>            <C>             <C>              <C>              <C>        
     Jeffery W. Johnson                  -  $           -          33,899          16,667   $             -  $            -
</TABLE>

(1)      Values are  calculated by  subtracting  the exercise or base price from
         the fair market  value of the stock as of the  exercise  date or fiscal
         year end,  as  appropriate,  which is  assumed  to be the same price at
         which  the  stock  was  initially  sold in 1991,  due to the lack of an
         established trading market.

(2)      Assumes,  for all  unexercised  in-the-money  options,  the  difference
         between fair market  value and the  exercise  price to be $ - - for the
         reason stated in (1) above.


                                       46
<PAGE>



ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT

Principal Shareholders

         The  following  table  presents  as  of  December  31,  1997,   certain
information  regarding  the  Company's  common  stock  owned by each  person who
beneficially owns more than 5% of the shares of the Company's common stock.
<TABLE>
<CAPTION>

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

       <S>                          <C>                                       <C>                        <C>  
              Common                Carl C. Atkinson                                  25,715   5                 6.34%
                                    Rt. 2, Box 777
                                    Broxton, Georgia 31519

              Common                Robert L. Cation                                  26,465                     6.52
                                    1206 Hampton Road
                                    Douglas, Georgia  31533

              Common                William C. Ellis, Jr.                             26,714                     6.58
                                    Post Office Box 270
                                    Douglas, Georgia  31534

              Common                Ralph G. Evans                                    31,264 6                   7.71
                                    Post Office Box 1264
                                    Douglas, Georgia  31534

              Common                A. Curtis Farrar, Jr.                             26,464                     6.52
                                    308 Dogwood Avenue
                                    Douglas, Georgia  31533

              Common                Norman E. Fletcher                                26,014 7                   6.41
                                    401 Shirley Avenue
                                    Douglas, Georgia  31533
</TABLE>

5   Includes 12,500 shares held in the name of Malklean B. Atkinson, wife of 
    Carl C. Atkinson.

6   Includes  600 shares  held in the name of Cady  Suzanne  Evans,  daughter of
    Ralph G.  Evans,  600 shares  held in the name of Christy  Elizabeth  Evans,
    daughter  of  Ralph G.  Evans  and 600  shares  held in the name of Ralph G.
    Evans, Jr., son of Ralph G. Evans.

7   Includes  200 shares held in the name of CEDE & Company  F/B/O  Norman E.  
    Fletcher IRA and 200 shares held in the name of
    CEDE & Company F/B/O Marvelyne G. Fletcher (wife of Normal E. Fletcher) IRA.


                                       47
<PAGE>



Stock Ownership by Management

         The  following  table  presents  as  of  December  31,  1997,   certain
information  regarding  the  Company's  common  stock  owned  (i) by each of the
Company's  directors and (ii) by all  directors  and  executive  officers of the
Company as a group.
<TABLE>
<CAPTION>

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

       <S>                          <C>                                       <C>                        <C>
              Common                Robert L. Cation                                  26,465                     6.52%
                                    1206 Hampton Road
                                    Douglas, Georgia  31533

              Common                Milton G. Clements                                18,314 8                   4.51



              Common                William C. Ellis, Jr.                             26,714 9                   6.58
                                    Post Office Box 270
                                    Douglas, Georgia  31534

              Common                Ralph G. Evans                                    31,264                     7.71
                                    Post Office Box 1264
                                    Douglas, Georgia  31534

              Common                A. Curtis Farrar, Jr.                             26,464                     6.52
                                    308 Dogwood Avenue
                                    Douglas, Georgia  31533

              Common                Norman E. Fletcher                                26,014 10                  6.41
                                    401 Shirley Avenue
                                    Douglas, Georgia  31533

        All directors and executive officers as a group (10 persons)                 155,235                    38.26%
                                                                               ===============            =================
</TABLE>

8   Includes 1,000 shares held in the name of Laura B. Clements,  wife of Milton
    G. Clements,  1,000 shares held in the name of Milton Bryan Clements, son of
    Milton  G.  Clements,  1,000  shares  held  in the  name of  Steven  Griffin
    Clements,  son of  Milton  G.  Clements,  1,000  shares  held in the name of
    William Donovan Clements, son of Milton G. Clements.

9   Includes  600 shares  held in the name of Cady  Suzanne  Evans,  daughter of
    Ralph G.  Evans,  600 shares  held in the name of Christy  Elizabeth  Evans,
    daughter  of  Ralph G.  Evans  and 600  shares  held in the name of Ralph G.
    Evans, Jr., son of Ralph G. Evans.

10  Includes  200 shares held in the name of CEDE & Company  F/B/O  Norman E. 
    Fletcher IRA and 200 shares held in the name of
    CEDE & Company F/B/O Marvalyne G. Fletcher (wife of Norman E. Fletcher) IRA.

                                       48
<PAGE>



         The  following  contains  information  with respect to the common stock
owned as of the record  date (i) by  directors  and  executive  officers  of the
Company and (ii) by all  directors  and  executive  officers of the Company as a
group,  who are deemed to be the beneficial  owners of additional  shares of the
common stock of the Company  through  their right to exercise  warrants or stock
options. The percent owned is calculated for each individual upon the assumption
that they have  exercised all of their  warrants or stock options while no other
holder of warrants  or options  has done so. The  percent  owned of the group is
calculated upon the assumption  that all such  individuals  have  simultaneously
exercised all of their warrants and options.
<TABLE>
<CAPTION>

                                                                                               Number of          % Owned
                                           Number of                                           Shares and       (Including
                   Name of                   Shares         Number of       Number of           Options/         Options/
              Beneficial Owner             Issued 11       Warrants 12       Options          Warrants 13      Warrants) 14
       --------------------------------  ---------------  --------------  ---------------   -----------------  --------------

       <S>                               <C>              <C>             <C>               <C>                <C>   
       Robert L. Cation                          26,465          25,000            1,561              53,026        12.27%
       Milton G. Clements                        18,314          12,500            1,561              32,375         7.71
       William C. Ellis, Jr.                     26,714          25,000            1,561              53,275        12.32
       Ralph G. Evans                            31,264          25,000            1,561              57,825        13.38
       A. Curtis Farrar, Jr.                     26,464          25,000            1,560              53,024        12.27
       Norman E. Fletcher                        26,014          25,000            1,561              52,575        12.16
                                         ---------------  --------------  ---------------   -----------------  --------------
          All directors and executive
             officers as a group
             (6 persons)                        155,235         137,500            9,365             302,100        54.42%
                                         ===============  ==============  ===============   =================  ==============
</TABLE>

         Under Mr. Jeffery W. Johnson's pending  employment  agreement and under
agreements  with the Bank's  directors  individually,  he acquired the rights to
acquire certain stock options and stock of the Company.  If Mr. Johnson acquired
all of the shares of stock available to him by stock option under his employment
agreement or from the Bank's  directors,  then he would own 65,926 shares of the
Company's stock which would represent 14.1% of the issued and outstanding  stock
of the Company  assuming  that no other holder of options or warrants  exercised
their rights to acquire additional stock.

11 Taken from the previous table except as noted.

12  In  recognition  of  the  efforts  and  financial  risks  undertaken  by the
    directors and executive officers in organizing the Company and the Bank, the
    directors  and  executive  officers  named  above were  granted  warrants to
    purchase one share of common stock for each share  purchased in the original
    offering,  however,  such persons elected to acquire a total of only 142,500
    such  warrants.  Upon  exercise,  each  warrant  will  entitle the holder to
    purchase  one share of the common  stock of the  company at a price equal to
    $10 per share (the same price at which the shares were initially sold to the
    public) unless the Bank is, at that time,  required to raise capital to meet
    its  regulatory  guidelines in which case the exercise price will be greater
    of $10 per  share or the book  value per  share of the  common  stock of the
    Company as reflected in the  Company's  quarterly  financial  report for the
    quarter and  immediately  prior to the exercise of the  warrant.  Subject to
    certain  limitations,  the warrants are exercisable for a period of ten (10)
    years from the date of the Company's stock offering.

13  Includes  shares  deemed  to be  beneficially  owned  through  the  right to
    exercise warrants or stock options exercisable within sixty (60) days of the
    record date.

14  Based upon 405,710 shares  outstanding as of the record date and as adjusted
    for  warrants or stock  options  exercisable  within  sixty (60) days of the
    record date.


                                       49
<PAGE>



ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Bank Loans to Affiliates

         The  Directors,  officers and employees of the Company and the Bank, as
well as individuals, firms and companies with which they are associated, have or
are  anticipated  to  have  banking  transactions  with  the  Bank.  Subject  to
applicable  laws,  the Bank  has a  policy  of  offering  loans to its  eligible
employees (i.e., employees other than Directors,  executive officers and holders
of more than ten percent of the Company's  outstanding  Common Stock, as well as
affiliates of such persons) at favorable  interest rates which generally will be
equal to or in excess of the Bank's prime  lending rate at the time of the loan.
Loans to  directors,  executive  officers,  controlling  shareholders  and their
affiliates  are made at the  prevailing  interest rate for  comparable  loans to
unaffiliated  borrowers. In all respects other than the rate of interest charged
on loans to  eligible  employees,  loans  by the  Bank to  directors,  officers,
employees  and  controlling  shareholders,  as  well  as to  affiliates  of such
persons,   are  extended  only  in  the  ordinary  course  of  business  and  on
substantially the same terms,  including collateral,  as those prevailing at the
time for comparable  transactions with unrelated persons and do not involve more
than the normal risk of collectability  or present other  unfavorable  features.
Bank policy also  requires that any loans by the Bank to any of its directors or
executive  officers  aggregating  in excess of $25,000  must be  approved by the
affirmative  vote of a majority of the Board of  Directors at a meeting in which
any interested  director has abstained from  participating,  either  directly or
indirectly.





                                       50
<PAGE>


                                     PART IV

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

(a)      Exhibits required by Item 601 of Regulation S-B.
<TABLE>
<CAPTION>

Exhibit
  No.                             Description
------                            ----------------------------------------------
 <S>                              <C>                         
  3.1                             Articles of Incorporation of the Registrant,  
                                  (filed as Exhibit 3.1 to the Registrant's Form
                                  S-18 (File Number 33-37078), as amended.)

  3.2                             Bylaws of the Registrant  (filed as Exhibit
                                  3.2 to the  Registrant's Form S-18(File Number
                                  33-37078), as amended.)

  10.1                            Form of subscription Agreement(filed as 
                                  Exhibit 10.1 to the Registrant's Annual Report
                                  on Form 10-KSB (File Number 33-37078),  filed
                                  with the Commission  for the year  ended  
                                  December  31, 1990 and incorporated herein by
                                  reference.)

  10.2                            Form of  Organizer's  Warrant  (filed as 
                                  Exhibit 10.2 to the  Registrant's Form S-18 
                                  (File Number 33-37078), as amended.)

  10.3                            1997 Incentive Stock Option Plan filed
                                  herewith electronically.

  10.4                            Executive Employment Agreement with Jeffery W. 
                                  Johnson filed herewith electronically.

  21.1                            Subsidiaries  of  the  Registrant.  (filed  as
                                  Exhibit 21.1 to the Registrant's Annual Report
                                  on Form 10-KSB (File Number  33-37078),  filed
                                  with  the   Commission   for  the  year  ended
                                  December 31, 1996 and  incorporated  herein by
                                  reference.)

  24                              Power of  Attorney  relating  to this  Annual 
                                  Report  on Form  10-KSB  is set  forth on the
                                  signature pages to this Annual Report.

  27                              Financial Data Schedule

  (b) The  Registrant  did not file any  reports  on Form  8-K  during  the last
quarter of the period covered by this Report.
</TABLE>

                                       51
<PAGE>


                                   SIGNATURES

         Pursuant to the  requirement  of Section 13 or 15(d) of the  Securities
Exchange Act of 1934 (the "Exchange  Act"),  the Registrant has duly caused this
Form  10-KSB to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.

                                FNC BANCORP, INC.

 Date:    March 26, 1998     By: /s/ Jeffery W. Johnson
          -------------     -------------------------------
                            Jeffery W. Johnson, President, Chief Executive 
                            Officer and Director


                                POWER OF ATTORNEY

         KNOWN ALL MEN BY THESE  PRESENTS,  that  each  person  whose  signature
appears   below   constitutes   and   appoints   Jeffery   W.   Johnson  as  his
attorney-in-fact,  acting with full power of  substitution  for him in his name,
place and stead, in any and all capacities,  to sign any amendments to this Form
10-KSB and to file the same, with exhibits  thereto,  and any other documents in
connection  therewith,  with the Securities  and Exchange  Commission and hereby
ratifies and  confirms  all that said  attorney-in-fact,  or his  substitute  or
substitutes, may do or cause to be done by virtue thereof.

         Pursuant to the  requirements of the Exchange Act, this Form 10-KSB has
been  signed  by the  following  persons  in  the  capacities  and on the  dates
indicated.

 Date:   March 26, 1998     /s/ Jeffery W. Johnson
         --------------     ---------------------------------------------------
                            Jeffery W. Johnson, President
                            Chief Executive Officer and Director

 Date:   March 26, 1998     /s/ Robert L. Cation
         --------------     ---------------------------------------------------
                            Robert L. Cation, Director

 Date:   March 26, 1998     /s/ Milton C. Clements
         --------------     ---------------------------------------------------
                            Milton G. Clements, Director

 Date:   March 26, 1998     /s/ William C. Ellis, Jr.
         --------------     ---------------------------------------------------
                            William C. Ellis, Jr., Director

 Date:   March 26, 1998     /s/ Ralph G. Evans
         --------------     ---------------------------------------------------
                            Ralph G. Evans, Director

 Date:   March 26, 1998     /s/ A. Curtis Farrar, Jr.
         --------------     ---------------------------------------------------
                             A. Curtis Farrar, Jr., Directo

 Date:   March 26, 1998     /s/ Norman E. Fletcher
        ---------------     ---------------------------------------------------
                            Norman E. Fletcher, Director


                                       52
<PAGE>


                                FNC BANCORP, INC.

                                  EXHIBIT INDEX
<TABLE>
<CAPTION>

Exhibit
   No.                            Description
-------                           ---------------------------------------------
<S>                               <C>                                  
3.1                               Articles of Incorporation of the Registrant, 
                                  (filed as Exhibit 3.1 to the Registrant's Form
                                  S-18 (File Number 33-37078), as amended.)

3.2                               Bylaws of the Registrant  (filed as Exhibit 
                                  3.2 to the  Registrant's  Form S-18 (File 
                                  Number 33-37078), as amended.)

10.1                              Form of subscription Agreement (filed as 
                                  Exhibit 10.1 to the Registrant's Annual Report 
                                  on Form 10-KSB (File Number 33-37078),  filed
                                  with the Commission  for the year  ended 
                                  December  31, 1990 and incorporated herein by 
                                  reference.)

10.2                              Form of  Organizer's  Warrant  (filed as 
                                  Exhibit 10.2 to the  Registrant's Form S-18 
                                  (File Number 33-37078), as amended.)

10.3                              1997 Incentive Stock Option Plan filed 
                                  herewith electronically.

10.4                              Executive Employment Agreement with Jeffery W. 
                                  Johnson filed herewith electronically.

21.1                              Subsidiaries  of  the  Registrant.  (filed  as
                                  Exhibit 21.1 to the Registrant's Annual Report
                                  on Form 10-KSB (File Number  33-37078),  filed
                                  with  the   Commission   for  the  year  ended
                                  December 31, 1996 and  incorporated  herein by
                                  reference.)

24                                Power of  Attorney  relating  to this  Annual  
                                  Report  on Form  10-KSB  is set  forth on the
                                  signature pages to this Annual Report.

27                                Financial Data Schedule

</TABLE>
  



                                       53
<PAGE>

<TABLE>
                                                                                                                        Page

<S>                                                                                                              <C>     
INDEPENDENT AUDITOR'S REPORTS....................................................................................F-1 and F-2

FINANCIAL STATEMENTS

     Consolidated balance sheets.........................................................................................F-3
     Consolidated statements of operation................................................................................F-4
     Consolidated statements of stockholders' equity.....................................................................F-5
     Consolidated statements of cash flows.......................................................................F-6 and F-7
     Notes to consolidated financial statements...................................................................F-8 - F-33

</TABLE>



<PAGE>











                          INDEPENDENT AUDITOR'S REPORT




To the Board of Directors
FNC Bancorp, Inc. and Subsidiary
Douglas, Georgia


     We have audited the accompanying consolidated balance sheet of FNC Bancorp,
Inc.  and  subsidiary  as of  December  31,  1997 and the  related  consolidated
statements of operation,  stockholders'  equity and cash flows for the year 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 audit. The financial statements of FNC Bancorp, Inc. and
Subsidiary  for the year ended  December 31, 1996 were audited by other auditors
whose report,  dated February 6, 1997, expressed an unqualified opinion on those
statements.

     We conducted  our audit in  accordance  with  generally  accepted  auditing
standards.  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 audit provides 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 FNC Bancorp,
Inc. and subsidiary as of December 31, 1997, and the results of their operations
and their cash  flows for the year then  ended,  in  conformity  with  generally
accepted accounting principles.





Albany, Georgia
January 30, 1998                                /s/ Mauldin & Jenkins, LLC

                                      F-1
<PAGE>








                          INDEPENDENT AUDITOR'S REPORT




To the Board of Directors
FNC Bancorp, Inc. and Subsidiary
Douglas, Georgia

     We have audited the  consolidated  balance sheet of FNC Bancorp,  Inc., and
Subsidiary as of December 31, 1996, and the related  consolidated  statements of
operations,  stockholders'  equity and cash flows for the year then ended. These
financial  statements are included for comparative purposes in the "Consolidated
Financial  Report" for the year ended  December  31,  1997.  These  consolidated
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audit.

     We conducted  our audit in  accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable  assurance about whether the  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  consolidated  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  audit  provides  a
reasonable basis for our opinion.


     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material respects, the consolidated financial position of
FNC Bancorp,  Inc. and Subsidiary as of December 31, 1996, and the  consolidated
results of their operations and their  consolidated cash flows for the year then
ended in conformity with generally accepted accounting principles.





Valdosta, Georgia
February 6, 1997                        Stewart, Fowler & Stalvey, P.C.




                                      F-2
<PAGE>
                                FNC BANCORP, INC.
                                 AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>

                                    Assets                                              
                                    ------                                               1997                    1996    
                                                                               ---------------------   ---------------------

<S>                                                                            <C>                     <C>                 
Cash and due from banks ...................................................... $          4,891,736    $          4,896,285
Interest-bearing deposits in banks ...........................................               32,864                  21,337
Federal funds sold ...........................................................               34,000               7,249,000
Securities available for sale, at fair value (Note 2) ........................            6,499,422               7,829,126

Loans (Note 3) ...............................................................           31,679,747              27,345,643
Less allowance for loan losses (Note 3) ......................................            1,159,173               1,520,385
                                                                               ---------------------   ---------------------
          Loans, net .........................................................           30,520,574              25,825,258
                                                                               ---------------------   ---------------------

Premises and equipment, net (Note 4) .........................................            1,655,030               1,682,081
Other assets .................................................................            1,169,108               1,607,655
                                                                               ---------------------   ---------------------

                                                                               $         44,802,734    $         49,110,742
                                                                               =====================   =====================

                     Liabilities and Stockholders' Equity

Deposits
    Noninterest-bearing demand ............................................... $          7,708,349    $          9,409,021
    Interest-bearing demand ..................................................            6,819,767               7,253,382
    Savings ..................................................................            1,832,359               1,778,551
    Time, $100,000 and over ..................................................            6,116,839               5,363,454
    Other time ...............................................................           16,570,685              18,740,193
                                                                               ---------------------   ---------------------
              Total deposits .................................................           39,047,999              42,544,601
    Notes payable, directors  (Note 6) .......................................              500,000                 500,000
    Federal funds purchased ..................................................              430,000                       -
    Other borrowings (Note 5) ................................................            1,075,000               2,485,000
    Other liabilities ........................................................              466,537                 647,569
                                                                               ---------------------   ---------------------
          Total liabilities ..................................................           41,519,536              46,177,170
                                                                               ---------------------   ---------------------

Commitments and contingent liabilities (Note 11)

Stockholders' equity
    Preferred stock, par value $1; 10,000,000 shares
        authorized, no shares issued .........................................                    -                       -
    Common stock, par value $1; 10,000,000 shares
        authorized 405,710 issued and outstanding ............................              405,710                 405,710
    Capital  surplus .........................................................            3,610,541               3,610,541
    Accumulated deficit ......................................................             (743,019)             (1,084,329)
    Unrealized gains on securities available
        for sale, net of tax .................................................                9,966                   1,650
                                                                               ---------------------   ---------------------

          Total stockholders' equity .........................................            3,283,198               2,933,572
                                                                               ---------------------   ---------------------

                                                                               $         44,802,734    $         49,110,742
                                                                               =====================   =====================
</TABLE>

                See Notes to Consolidated Financial Statements.
 
                                     F-3
<PAGE>


                                FNC BANCORP, INC.
                                 AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATION
                     YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>


                                                                                         1997                      1996
                                                                                  --------------------   ---------------------
<S>                                                                               <C>                    <C>    
Interest income
    Interest and fees on loans .................................................. $         2,697,495    $          3,118,357
    Interest on taxable securities ..............................................             510,346                 320,422
    Interest on deposits in other banks .........................................                 692                   4,506
    Interest on Federal funds sold ..............................................             173,093                 274,544
                                                                                  --------------------   ---------------------
                                                                                            3,381,626               3,717,829
                                                                                  --------------------   ---------------------

Interest expense
    Interest on deposits ........................................................           1,506,970               1,795,263
    Interest on other borrowings ................................................             139,260                 135,694
                                                                                  --------------------   ---------------------
                                                                                            1,646,230               1,930,957
                                                                                  --------------------   ---------------------

          Net interest income ...................................................           1,735,396               1,786,872
Provision for loan losses (Note 3) ..............................................              30,450               2,305,174
                                                                                  --------------------   ---------------------
          Net interest income (loss) after provision for loan losses ............           1,704,946                (518,302)
                                                                                  --------------------   ---------------------

Other income
    Service charges on deposit accounts .........................................             346,136                 366,116
    Other service charges, commissions and fees .................................              18,031                  18,392
    Net realized gains on securities available for sale .........................                 900                     761
    Origination fees on mortgage loans ..........................................              19,291                  21,564
    Other .......................................................................              38,034                  26,572
                                                                                  --------------------   ---------------------
                                                                                              422,392                 433,405
                                                                                  --------------------   ---------------------

Other expenses
    Salaries and employee benefits (Note 7) .....................................             805,041                 871,840
    Equipment expense ...........................................................             140,235                 108,202
    Occupancy expense ...........................................................              92,868                 105,261
    Amortization of intangible assets ...........................................                   -                  15,240
    Accounting expenses .........................................................              96,885                  44,765
    Advertising expense .........................................................              39,613                  60,891
    Data processing expenses ....................................................              62,403                  66,284
    Printing and office supplies ................................................              54,077                  60,865
    Other operating expenses ....................................................             318,226                 319,019
                                                                                  --------------------   ---------------------
                                                                                            1,609,348               1,652,367
                                                                                  --------------------   ---------------------

          Income (loss) before income taxes .....................................             517,990              (1,737,264)

Applicable income taxes (benefit) (Note 8) ......................................             176,680                (590,932)
                                                                                  --------------------   ---------------------

          Net income (loss) ..................................................... $           341,310    $         (1,146,332)
                                                                                  ====================   =====================

Income (loss) per common share - basic and diluted .............................. $              0.84    $              (2.83)
                                                                                  ====================   =====================
</TABLE>

                See Notes to Consolidated Financial Statements.

                                      F-4
<PAGE>



                                FNC BANCORP, INC.
                                 AND SUBSIDIARY

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                     YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>



                                                                                                 Unrealized
                                                                                                   Gains
                                                                                                (Losses) on
                                                                                                 Securities
                                                                                 Retained        Available         Total
                                      Common Stock             Capital           Earnings        for Sale,     Stockholders'
                               ---------------------------
                                 Shares       Par Value        Surplus           (Deficit)       Net of Tax       Equity
                               -----------  -------------- ----------------  ------------------ ------------- ----------------

<S>                            <C>          <C>            <C>               <C>                <C>           <C>               
Balance, December 31, 1995        405,710   $     405,710  $     3,610,541   $          62,003  $       (867) $     4,077,387
    Net (loss) ...............          -               -                -          (1,146,332)            -       (1,146,332)
    Net change in unrealized
        gains (losses) on
        securities available for
        sale, net of tax .....          -               -                -                   -         2,517            2,517
                               -----------  -------------- ----------------  ------------------ ------------- ----------------
Balance, December 31, 1996 ...    405,710         405,710        3,610,541          (1,084,329)        1,650        2,933,572
    Net income ...............          -               -                -             341,310             -          341,310
    Net change in unrealized
        gains (losses) on
        securities available for
        sale, net of tax .....          -               -                -                   -         8,316            8,316
                               -----------  -------------- ----------------  ------------------ ------------- ----------------
Balance, December 31, 1997 ...    405,710   $     405,710  $     3,610,541   $        (743,019) $      9,966  $     3,283,198
                               ===========  ============== ================  ================== ============= ================

</TABLE>

                See Notes to Consolidated Financial Statements.

                                      F-5
<PAGE>


                                FNC BANCORP, INC.
                                 AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>


                                                                                         1997                      1996
                                                                                 ---------------------   ---------------------
<S>                                                                              <C>                     <C>    
OPERATING ACTIVITIES
    Net income (loss) .......................................................... $            341,310    $         (1,146,332)
                                                                                 ---------------------   ---------------------
    Adjustments to reconcile net income (loss) to net cash provided by operating
        activities:
        Depreciation ...........................................................              134,383                 108,536
        Amortization of intangible assets ......................................                    -                  15,240
        Provision for loan losses ..............................................               30,450               2,305,174
        Provision for deferred income taxes ....................................              176,680                (469,677)
        Net realized gains on securities available for sale ....................                 (900)                   (761)
        Net accretion of investment securities .................................              (18,782)                (31,305)
        (Increase) decrease in interest receivable .............................              174,393                 (70,743)
        Decrease in interest payable ...........................................             (154,199)                (30,647)
        Decrease in taxes payable ..............................................                    -                 (55,195)
        Decrease in prepaid taxes ..............................................               66,360                       -
        Other prepaids, deferrals and accruals, net ............................              (10,003)               (110,414)
                                                                                 ---------------------   ---------------------
              Total adjustments ................................................              398,382               1,660,208
                                                                                 ---------------------   ---------------------

              Net cash provided by operating activities ........................              739,692                 513,876
                                                                                 ---------------------   ---------------------

INVESTING ACTIVITIES
    (Increase) decrease in interest-bearing deposits in banks ..................              (11,527)                617,230
    Proceeds from sales of securities available for sale .......................            1,123,667                 500,000
    Purchases of securities available for sale .................................           (4,538,046)             (7,657,138)
    Proceeds from maturities of securities available for sale ..................            4,776,365               3,845,819
    Proceeds from maturities of securities held-to-maturity ....................                    -                 710,000
    (Increase) decrease in Federal funds sold ..................................            7,215,000              (3,429,000)
    Increase (decrease) in loans, net ..........................................           (4,725,766)              3,347,601
    Purchase of premises and equipment .........................................             (107,332)                (96,604)
                                                                                 ---------------------   ---------------------

              Net cash provided by (used in) investing activities ..............            3,732,361              (2,162,092)
                                                                                 ---------------------   ---------------------

FINANCING ACTIVITIES
    Decrease in deposits .......................................................           (3,496,602)             (2,640,943)
    Increase in Federal funds purchased ........................................              430,000                       -
    Increase (decrease) in other borrowings ....................................           (1,410,000)              1,890,000
    Proceeds from notes payable ................................................                    -                 500,000
                                                                                 ---------------------   ---------------------

              Net cash used in financing activities ............................           (4,476,602)               (250,943)
                                                                                 ---------------------   ---------------------
</TABLE>


                                      F-6
<PAGE>


                                FNC BANCORP, INC.
                                 AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>


                                                                                         1997                      1996
                                                                                  --------------------   ---------------------

<S>                                                                               <C>                    <C>                  
Net decrease in cash and due from banks ........................................  $            (4,549)   $         (1,899,159)

Cash and due from banks at beginning of year ...................................            4,896,285               6,795,444
                                                                                  --------------------   ---------------------

Cash and due from banks at end of year .........................................  $         4,891,736    $          4,896,285
                                                                                  ====================   =====================

SUPPLEMENTAL DISCLOSURES
    Cash paid (received) during the year for:
        Interest ...............................................................  $         1,800,429    $          1,961,604

        Income taxes ...........................................................  $           (66,360)   $            121,555

NONCASH TRANSACTION
    Net change in unrealized gains (losses) on securities
        available for sale .....................................................  $            12,600    $              3,814

</TABLE>

                See Notes to Consolidated Financial Statements.

                                      F-7

<PAGE>




                                FNC BANCORP, INC.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

                  Nature of Business

                     FNC Bancorp,  Inc. (the Company) is a bank holding  company
                     whose business is conducted by its wholly-owned subsidiary,
                     First National Bank of Coffee County,  (the Bank). The Bank
                     is a  commercial  bank located in Douglas,  Coffee  County,
                     Georgia. The Bank provides a full range of banking services
                     in its  primary  market  area  of  Coffee  County  and  the
                     surrounding counties.

                  Basis of Presentation

                     The  accounting  and  reporting  policies  of  the  Company
                     conform to generally  accepted  accounting  principles  and
                     general practices within the financial  services  industry.
                     In  preparing  the  financial  statements,   management  is
                     required to make estimates and assumptions  that affect the
                     reported  amounts of assets and  liabilities as of the date
                     of the balance  sheet and  revenues  and  expenses  for the
                     period. Actual results could differ from those estimates.

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

                     The principles which significantly affect the determination
                     of financial position, results of operations and cash flows
                     are summarized below.

                  Cash and Cash Equivalents

                     Cash on hand,  cash  items in process  of  collection,  and
                     amounts  due  from  banks  are  included  in cash  and cash
                     equivalents.  Cash flows from loans originated by the Bank,
                     deposits,  interest-bearing  deposits,  and  Federal  funds
                     purchased and sold are reported at 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.

                                      F-8
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

                  Securities

                     Securities are classified  based on management's  intention
                     on the date of purchase.  Securities  which  management has
                     the intent to hold for an  indefinite  period of time,  but
                     not  necessarily  to maturity,  are classified as available
                     for sale and are recorded at fair value with net unrealized
                     gains and losses included in stockholders'  equity,  net of
                     tax.

                     Interest   and   dividends   on    securities,    including
                     amortization  of premiums and accretion of  discounts,  are
                     included in interest income. Realized gains and losses from
                     the sales of securities are  determined  using the specific
                     identification method.

                 Loans

                     Loans are carried at their  principal  amounts  outstanding
                     less  unearned  income and the  allowance  for loan losses.
                     Interest income on loans is credited to income based on the
                     principal amount outstanding.

                     Loan origination fees and certain direct costs of loans are
                     recognized  at the time the loan is  recorded.  Because net
                     origination  loan  fees and  costs  are not  material,  the
                     results of operations are not materially different than the
                     results which would be obtained by accounting for loan fees
                     and costs in accordance with generally accepted  accounting
                     principles.

                     The allowance for loan losses is maintained at a level that
                     management  believes  to be  adequate  to absorb  potential
                     losses in the loan portfolio. Management's determination of
                     the adequacy of the  allowance is based on an evaluation of
                     the portfolio, past loan loss experience,  current economic
                     conditions,   volume,  growth,   composition  of  the  loan
                     portfolio,  and other risks inherent in the  portfolio.  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
                     record  additions to the allowance  based on their judgment
                     about  information  available  to them at the time of their
                     examinations.

                                      F-9
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

                  Loans (Continued)

                     The accrual of interest on impaired  loans is  discontinued
                     when, in management's  opinion,  the borrower may be unable
                     to meet  payments  as they  become  due.  When  accrual  of
                     interest is  discontinued,  all unpaid accrued  interest is
                     reversed.

                     A loan is impaired  when it is probable the Company will be
                     unable to collect all principal  and interest  payments due
                     in  accordance  with  the  terms  of  the  loan  agreement.
                     Individually  identified  impaired loans are measured based
                     on the present  value of payments  expected to be received,
                     using  the  contractual  loan  rate as the  discount  rate.
                     Alternatively,  measurement  may  be  based  on  observable
                     market  prices or, for loans that are solely  dependent  on
                     the collateral for repayment,  measurement  may be based on
                     the  fair  value  of  the   collateral.   If  the  recorded
                     investment in the impaired loan exceeds the measure of fair
                     value, a valuation  allowance is established as a component
                     of the allowance for loan losses.  Changes to the valuation
                     allowance  are recorded as a component of the provision for
                     loan losses.

                  Premises and Equipment

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

                  Other Real Estate Owned

                     Other  real  estate  owned  (OREO)  represents   properties
                     acquired through foreclosure or other proceedings.  OREO is
                     held for sale and is recorded at the lower of the  recorded
                     amount  of the loan or fair  value of the  properties  less
                     estimated  costs of disposal.  Any write-down to fair value
                     at the time of transfer to OREO is charged to the allowance
                     for loan losses.  Property is evaluated regularly to ensure
                     the recorded  amount is supported by its current fair value
                     and valuation  allowances to reduce the carrying  amount to
                     fair value less estimated  costs to dispose are recorded as
                     necessary. Subsequent decreases in fair value and increases
                     in fair value, up to the value  established at foreclosure,
                     are   recognized  as  charges  or  credits  to  noninterest
                     expense.



                                      F-10
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

                 Income Taxes

                     Income tax expense  consists of current and deferred taxes.
                     Current income tax provisions  approximate taxes to be paid
                     or refunded for the  applicable  year.  Deferred tax assets
                     and liabilities are recognized on the temporary differences
                     between the bases of assets and  liabilities as measured by
                     tax  laws and  their  bases as  reported  in the  financial
                     statements.   Deferred  tax  expense  or  benefit  is  then
                     recognized  for  the  change  in  deferred  tax  assets  or
                     liabilities between periods.

                     Recognition  of deferred tax balance sheet amounts is based
                     on management's belief that it is more likely than not that
                     the  tax  benefit   associated   with   certain   temporary
                     differences,  tax  operating  loss  carryforwards,  and tax
                     credits will be realized. A valuation allowance is recorded
                     for those  deferred  tax items for which it is more  likely
                     than not that realization will not occur.

                     The  Company  and the Bank file a  consolidated  income tax
                     return.  Each entity provides for income taxes based on its
                     contribution to income taxes (benefits) of the consolidated
                     group.

                 Earnings (Loss) Per Common Share

                     Basic  earnings  (loss ) per  share are  calculated  on the
                     basis of the  weighted  average  number  of  common  shares
                     outstanding.  Diluted  earnings  per share are  computed by
                     dividing  net  income  (loss)  by the  sum of the  weighted
                     average number of common shares  outstanding  and potential
                     common  shares  that have a  dilutive  effect  on  earnings
                     (loss).

                 Current Accounting Developments

                     In June 1996, the Financial Accounting Standards Board (the
                     "FASB") issued Statement of Financial  Accounting Standards
                     No  125,   "Accounting   for  Transfers  and  Servicing  of
                     Financial Assets and Extinguishments of Liabilities" ("SFAS
                     No.   125").   This   statement   provides   standards  for
                     distinguishing transfers of financial assets that are sales
                     from  those  that  are  secured  borrowings,  and  provides
                     guidance  on  the  recognition  and  measurement  of  asset
                     servicing contracts and on debt extinguishments. As issued,
                     SFAS No. 125 is effective for transactions  occurring after
                     December 31, 1996.  However, as a result of an amendment to
                     SFAS  No.  125  by  the  FASB  in  December  1996,  certain
                     provision of SFAS No. 125 are  deferred  for an  additional
                     year.  Adoption  of  the  new  accounting  standard  is not
                     expected  to  have  a  material  impact  on  the  Company's
                     financial statements.

                                      F-11
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

                Current Accounting Developments (Continued)

                     In February 1997,  the FASB issued SFAS No. 128,  "Earnings
                     per Share".  This  statement  simplifies  the standards for
                     computing  earnings per share  previously  set forth in APB
                     Opinion  No.  15,  "Earnings  per  Share",  and makes  them
                     comparable  to  international  earnings  per Share  ("EPS")
                     standards. It replaces the presentation of primary EPS with
                     a  presentation   of  basic  EPS.  It  also  requires  dual
                     presentation  of basic and  diluted  EPS on the face of the
                     income  statement  for all entities  with  complex  capital
                     structures and requires a  reconciliation  of the numerator
                     and  denominator  of  the  basic  EPS  computation  to  the
                     numerator and  denominator of the diluted EPS  computation.
                     Basic EPS  excludes  dilution  and is  computed by dividing
                     income   available   to   common    stockholders   by   the
                     weighted-average  number of common shares  outstanding  for
                     the period.  Diluted EPS  reflects the  potential  dilution
                     that could occur if securities or other  contracts to issue
                     common stock were  exercised or converted into common stock
                     or  resulted  in the  issuance  of common  stock  that then
                     shared  in the  earnings  of  the  entity.  Diluted  EPS is
                     computed  similarly  to fully  diluted EPS  pursuant to APB
                     Opinion No. 15. This  statement is effective  for financial
                     statements  issued for periods  ending  after  December 15,
                     1997.  The  adoption  of  this  statement  did  not  have a
                     material impact on the Company's financial statements.

                     In June 1997,  the FASB  issued  SFAS No.  130,  "Reporting
                     Comprehensive Income". This statement establishes standards
                     for reporting and display of  comprehensive  income and its
                     components (revenues. expenses, gains and losses) in a full
                     set of general-purpose financial statements. This statement
                     requires  that all items that are required to be recognized
                     under  accounting  standards as components of comprehensive
                     income  be  reported  in  a  financial  statement  that  is
                     displayed  with the  same  prominence  as  other  financial
                     statements.  This  statement  does not  require a  specific
                     format for that  financial  statement  but requires that an
                     enterprise    display   an   amount    representing   total
                     comprehensive  income  for the  period  in  that  financial
                     statement.  This  statement  requires  that  an  enterprise
                     classify  items  of  other  comprehensive  income  by their
                     nature in a financial statement and display the accumulated
                     balance or other comprehensive  income by their nature in a
                     financial  statement and display the accumulated balance or
                     other   comprehensive   income   separately  from  retained
                     earnings  and  additional  paid-in  capital  in the  equity
                     section  of  a  statement  of  financial   position.   This
                     statement is effective  for fiscal  years  beginning  after
                     December  15, 1997.  The adoption of this  statement is not
                     expected  to  have  a  material  impact  on  the  Company's
                     financial statements.

                                      F-12
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

                 Current Accounting Developments (Continued)

                     In June 1997,  The FASB issued  SFAS No. 131,  "Disclosures
                     about Segments of an Enterprise  and Related  Information."
                     This statement  requires that a public business  enterprise
                     report  financial  and  descriptive  information  about its
                     reportable  operating  segments.   Operating  segments  are
                     components of an enterprise about which separate  financial
                     information is available that is evaluated regularly by the
                     chief operating  decision maker in deciding how to allocate
                     resources   and  in   assessing   performance.   Generally,
                     financial  information  is  required  to be reported on the
                     basis that it is used  internally  for  evaluating  segment
                     performance  and  deciding  how to  allocate  resources  to
                     segments. The statement requires that a business enterprise
                     report  a  measure  of  segment  profit  or  loss,  certain
                     specific  revenue and expense items and segment assets.  It
                     requires  reconciliations of total segment revenues,  total
                     segment  profit or loss,  total  segment  assets  and other
                     amounts disclosed for segments to corresponding  amounts in
                     the enterprise's general purpose financial  statements.  It
                     requires that the enterprise  report  information about the
                     revenues   derived  from  the   enterprise's   products  or
                     services, about the countries in which the enterprise earns
                     revenues  and hold assets and about major  customers.  This
                     statement is effective for financial statements for periods
                     beginning  after  December 15,  1997.  The adoption of this
                     statement is not expected to have a material  impact on the
                     Company's financial statements.

                 Reclassifications

                     Certain  reclassifications  have  been  made  in  the  1996
                     consolidated   financial   statements  to  conform  to  the
                     presentation used in 1997.


NOTE 2.  SECURITIES

                  The amortized  cost and  approximate  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, 1997:
                   U. S. Government and agency
                     securities ................. $    6,010,722    $      16,702   $     (1,602)   $     6,025,822
                   Other investments ............        473,600                -               -           473,600
                                                  ---------------   --------------  --------------  ----------------
                                                  $    6,484,322    $      16,702   $     (1,602)   $     6,499,422
                                                  ===============   ==============  ==============  ================

</TABLE>

                                      F-13
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE 2.  SECURITIES (Continued)
<TABLE>
<CAPTION>

                                                                                   Gross           Gross
                                                               Amortized        Unrealized      Unrealized          Fair
                                                                  Cost             Gains          Losses            Value
                                                            ---------------   --------------  --------------  ----------------
                       <S>                                  <C>               <C>             <C>             <C>   
                       Securities Available for Sale
                           December 31, 1996:
                             U. S. Government and agency
                               securities ................. $    7,217,273    $       8,431   $     (9,658)   $     7,216,046
                             Mortgage-backed securities ...        150,753            3,727               -           154,480
                             Other investments ............        458,600                -               -           458,600
                                                            ---------------   --------------  --------------  ----------------
                                                            $    7,826,626    $      12,158   $     (9,658)   $     7,829,126
                                                            ===============   ==============  ==============  ================
</TABLE>

                  The amortized cost and fair value of securities as of December
                  31, 1997 by contractual maturity are shown below:
<TABLE>
<CAPTION>

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

                       <S>                                                                <C>               <C>            
                       Due in one year or less .......................................... $    2,972,772    $     2,975,570
                       Due from one year to five years ..................................      3,511,550          3,523,852
                                                                                          ---------------   ----------------
                                                                                          $    6,484,322    $     6,499,422
                                                                                          ===============   ================
</TABLE>

                  Securities  with a carrying value of $3,524,698 and $3,851,150
                  at December 31, 1997 and 1996,  respectively,  were pledged to
                  secure public deposits and for other purposes.

                  Gains and  losses on sales of  securities  available  for sale
                  consist of the following:
<TABLE>
<CAPTION>

                                                                                                     December 31,
                                                                                          ----------------------------------
                                                                                                1997               1996
                                                                                          ---------------    ---------------

                      <S>                                                                 <C>                <C>           
                      Gross gains on sales of securities ................................ $        2,194     $          761
                      Gross losses on sales of securities ...............................         (1,294)                 -
                                                                                          ---------------    ---------------
                      Net realized gains (losses) on sales of securities available for  
                      Sale .............................................................. $          900     $          761
                                                                                          ===============    ===============

</TABLE>

                                      F-14
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE 3.  LOANS AND ALLOWANCE FOR LOAN LOSSES

         The composition of loans is summarized as follows:
<TABLE>
<CAPTION>

                                                                                        December 31,
                                                                         -------------------------------------------
                                                                                  1997                   1996
                                                                         -------------------     -------------------

             <S>                                                         <C>                     <C>               
             Commercial and financial .................................. $        4,558,964      $        5,099,933
             Agricultural ..............................................          2,368,981               2,970,961
             Real estate - construction ................................          1,657,987                 810,989
             Real estate - mortgage, farmland ..........................          4,682,963               2,763,964
             Real estate - mortgage, other .............................         14,450,885              10,289,866
             Consumer instalment .......................................          3,959,967               5,409,930
                                                                         -------------------     -------------------
                                                                                 31,679,747              27,345,643
             Allowance for loan losses .................................         (1,159,173)             (1,520,385)
                                                                         -------------------     -------------------
             Loans, net ................................................ $       30,520,574      $       25,825,258
                                                                         ===================     ===================
</TABLE>

                  The total  recorded  investment in impaired loans was $772,654
                  at December  31, 1997.  Included in these loans were  $654,438
                  that had a  related  allowance  for loan loss of  $139,461  at
                  December 31, 1997. The average recorded investment in impaired
                  loans for 1997 was  $1,365,746.  Interest  income on  impaired
                  loans of $7,987 was recognized for cash payments  received for
                  the year ended December 31, 1997. There were no impaired loans
                  in 1996.

                  Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>

                                                                                                December 31,
                                                                                  ------------------------------------------
                                                                                          1997                   1996
                                                                                  -------------------    -------------------

                      <S>                                                         <C>                    <C>               
                      Balance, beginning of year ................................ $        1,520,385     $          385,360
                         Provision charged to operations ........................             30,450              2,305,174
                         Loans charged off ......................................           (672,363)            (1,449,603)      
                         Recoveries .............................................            280,701                279,454
                                                                                  -------------------    -------------------
                      Balance, end of year ...................................... $        1,159,173     $        1,520,385
                                                                                  ===================    ===================
</TABLE>



                                      F-15
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE 3.  LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

                  The Bank has  granted  loans to certain  directors,  executive
                  officers and related  entities.  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  involved.  The aggregate  amount of loans to
                  such related parties at December 31, 1997 was $176,987. During
                  1997, new loans to such related  parties  amounted to $380,880
                  and repayments amounted to $122,100.


NOTE 4.  PREMISES AND EQUIPMENT, NET

         Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>

                                                                                           December 31,
                                                                              ---------------------------------------
                                                                                     1997                  1996
                                                                              -----------------     -----------------

             <S>                                                              <C>                   <C>             
             Land ........................................................... $        372,676      $        372,676
             Buildings and improvements .....................................        1,064,078             1,064,078
             Equipment ......................................................          811,389               704,057
                                                                              -----------------     -----------------
                                                                                     2,248,143             2,140,811
             Accumulated depreciation .......................................         (593,113)             (458,730)
                                                                              -----------------     -----------------
                                                                              $      1,655,030      $      1,682,081
                                                                              =================     =================
</TABLE>

                  Depreciation expense for the years ended December 31, 1997 and
                  1996 was $134,383 and $108,536, respectively.


                                      F-16
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




NOTE 5.  OTHER BORROWINGS

                  Other borrowings consist of the following:
<TABLE>
<CAPTION>
                                                                                                    December 31,
                                                                                       ---------------------------------------
                                                                                              1997                  1996
                                                                                       -----------------     -----------------

                      <S>                                                              <C>                   <C>             
                      Advances from the Federal Home Bank with interestat fixed
                      rates  which  averaged  5.67% at December  31,
                      1997  (5.55%  in  1996),   various  repayment  options,
                      maturities through May 16, 2005. ............................... $      1,075,000      $      2,485,000
                                                                                       =================     =================
</TABLE>
     
                         

                  The   advances   from  the   Federal   Home   Loan   Bank  are
                  collateralized  by the pledging of first mortgage  loans.  The
                  advances  must  be  fully  secured   after   discounting   the
                  qualifying loans at 75% of the principal balance outstanding.

                  Other  borrowings at December 31, 1997 have maturities for the
                  succeeding five years as follows:

                     Year ending December 31,
                        1998 .................................. $     1,010,000
                        1999 ..................................          10,000
                        2000 ..................................          10,000
                        2001 ..................................          10,000
                        2002 ..................................          10,000
                        Later years ...........................          25,000


NOTE 6.  NOTES PAYABLE TO DIRECTORS

                  Notes  payable to directors in the amount of $500,000  consist
                  of notes which were executed on December 26, 1996. Each of the
                  notes accrues interest at the Bank's prime rate less 1%. There
                  are no  scheduled  principal or interest  payments  during the
                  first two years of the notes.  Principal and interest payments
                  in  years   three   through   five  are   subject  to  certain
                  restrictions  relative to the Bank's  earnings and  regulatory
                  capital  position.  Each of the notes  matures on December 27,
                  2001.


                                      F-17
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE 7.  EMPLOYEE BENEFIT PLAN

                  The  Bank has a  401(k)  salary  deferral  plan  which  allows
                  employees  to defer up to 15% of their  salary with  partially
                  matching Bank  contributions.  Bank contributions to this plan
                  charged to expense  amounted to $10,813 and $7,742 in 1997 and
                  1996, respectively.


NOTE 8.  INCOME TAXES

                  The provision for income taxes consists of the following:
<TABLE>
<CAPTION>

                                                                                     Year Ended December 31,
                                                                              ---------------------------------------
                                                                                     1997                  1996
                                                                              -----------------    ------------------

             <S>                                                              <C>                  <C>              
             Current .......................................................  $              -     $       (121,255)
             Deferred ......................................................           176,680             (469,677)
                                                                              -----------------    ------------------
                                                                              $        176,680     $       (590,932)
                                                                              =================    ==================
</TABLE>

                  The  Company's  provision  for income  taxes  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>

                                                                                   December 31,
                                                              -------------------------------------------------------
                                                                        1997                         1996
                                                              --------------------------   --------------------------
                                                                 Amount       Percent         Amount        Percent
                                                              -------------  -----------   --------------  ----------

              <S>                                             <C>             <C>          <C>              <C> 
              Tax provision at statutory rate ............... $    176,117       34 %      $   (590,670)       34 %
              Increase (decrease) resulting from:
                 Other items, net ...........................          563        -                (262)        -
                                                              -------------  -----------   --------------  ----------
              Provision for income taxes .................... $    176,680       34 %      $   (590,932)       34 %
                                                              =============  ===========   ==============  ==========
</TABLE>


                                      F-18
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE 8.  INCOME TAXES (Continued)

         The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>

                                                                                                   December 31,
                                                                                      ---------------------------------------
                                                                                            1997                  1996
                                                                                      -----------------     -----------------
                     <S>                                                              <C>                   <C>    
                     Deferred tax assets:
                        Loan loss reserves .........................................  $        256,143      $        411,997
                         Net operating loss carryover ..............................           200,795               187,481
                                                                                      -----------------     -----------------
                                                                                               456,938               599,478
                                                                                      -----------------     -----------------

                     Deferred tax liabilities:
                        Depreciation ...............................................            83,377                49,237
                        Unrealized gain on securities available for sale ...........             5,134                   850
                                                                                      -----------------     -----------------
                                                                                                88,511                50,087
                                                                                      -----------------     -----------------

                     Net deferred tax assets .......................................  $        368,427      $        549,391
                                                                                      =================     =================
</TABLE>


 NOTE 9. STOCK WARRANTS AND STOCK OPTION PLAN

                  Stock Warrants

                     In   recognition   of  the  efforts  and  financial   risks
                     undertaken by the Company's organizers, the Company granted
                     each  organizer  an  opportunity  to purchase  one share of
                     common  stock  for  each  share  purchased  by  them in the
                     Company's  common  stock  offering.   The  warrants  became
                     exercisable  on the date the Bank opened for  business  and
                     are  exercisable in whole or in part at any time during the
                     ten year period  following  that date, at an exercise price
                     equal to $10 per share unless the Bank is required to raise
                     capital to meet  regulatory  guidelines.  In the event this
                     occurs,  the exercise  price will be the greater of $10 per
                     share or the book  value per share of the  common  stock as
                     reflected in the Company's  quarterly  financial report for
                     the quarter ended  immediately prior to the exercise of the
                     warrant.  The warrants are  nontransferable,  other than by
                     will or the laws of descent  and  distribution,  but shares
                     issued  pursuant  to  the  exercise  of  warrants  will  be
                     transferable,   subject  to  compliance   with   applicable
                     securities laws.


                                      F-19
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE 9.  STOCK WARRANTS AND STOCK OPTION PLAN (Continued)

                  Stock Option Plan

                     The  Company  approved  a Stock  Option  Plan in 1997  that
                     allows the Company to grant  "incentive  stock  options" or
                     "non-qualified  stock  options"  up to  125,000  shares  of
                     common stock to key employees.  The key employee "incentive
                     stock  options" are intended to qualify for  favorable  tax
                     treatment  under Section 422 of the Internal  Revenue Code.
                     The Stock Option Plan will be  administered by the Board of
                     Directors  of the Company and will provide for the granting
                     of  options  to  purchase  shares  of the  common  stock to
                     officers  and other key  employees  of the  Company and its
                     subsidiary.  The  purchase  price  under  all such  options
                     intended to qualify as  incentive  options will not be less
                     than the fair market value of the shares of common stock on
                     the date of grant.  Options will be  exercisable  upon such
                     terms as may be  determined by the body  administering  the
                     Stock Option Plan, but in any event,  all options,  whether
                     intended to qualify as  incentive  options or not,  will be
                     exercisable  no later  than  ten  years  after  the date of
                     grant.

                    A summary of the status of the plan at December  31,  1997
                    and 1996 and changes  during the years ended on those dates
                    is as follows:
<TABLE>
<CAPTION>

                                                                              December 31,
                                                        ----------------------------------------------------------
                                                                    1997                          1996
                                                        ----------------------------   ---------------------------
                                                                       Weighted-                      Weighted-
                                                                        Average                        Average
                                                                        Exercise                      Exercise
                                                          Number         Price           Number         Price
                                                        -----------  ---------------   -----------  --------------

              <S>                                       <C>          <C>               <C>          <C>          
              Under option, beginning of year .........    148,426   $        10.00       153,426   $       10.00
                 Granted ..............................     39,640            10.00             -               -
                 Exercised ............................          -                -             -               -
                 Forfeited ............................          -                -       (5,000)           10.00
                                                        -----------                    -----------
              Under option, end of year ...............    188,066            10.00       148,426           10.00
                                                        ===========                    ===========

              Exercisable at end of year ..............    171,399                        148,426
                                                        ===========                    ===========

              Available for grant at end of year ......     85,360                              -
                                                        ===========                    ===========

              Weighted-average fair value per option
                 of options granted during the year ...  $    4.53                     $        -
                                                        ===========                    ===========
</TABLE>


                                      F-20
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE 9.  STOCK WARRANTS AND STOCK OPTION PLAN (Continued)

                  Stock Option Plan (Continued)

                  A further  summary about options  outstanding  at December 31,
                  1997 is as follows:
<TABLE>
<CAPTION>

                                
                                                        Options Outstanding                         Options Exercisable
                                         --------------------------------------------------   --------------------------------    
                            Range                             Weighted-        Weighted-                          Weighted-
                             of                                Average          Average                            Average
                          Exercise           Number          Contractual       Exercise           Number          Exercise
                           Prices          Outstanding      Life in Years        Price         Outstanding          Price
                        --------------   ----------------   --------------   --------------   ---------------   --------------

                        <S>               <C>                      <C>       <C>              <C>               <C>               
                        $       10.00            148,426              3.9    $       10.00           148,426    $       10.00
                                10.00             25,000              9.3            10.00             8,333            10.00
                                10.00             14,640             10.0            10.00            14,640            10.00
                                         ----------------                                     ---------------
                                                 188,066             5.09            10.00           171,399            10.00
                                         ================                                     ===============
</TABLE>

                  As permitted by Statement of Financial Accounting Standard No.
                  123, "Accounting for Stock-Based Compensation" (SFAS No. 123),
                  the  Company  recognizes  compensation  cost  for  stock-based
                  employee  compensation  awards in accordance  with APB Opinion
                  No.  25,  "Accounting  for  Stock  Issued to  Employees".  The
                  company   recognized  no  compensation  cost  for  stock-based
                  employee  compensation awards for the years ended December 31,
                  1997 and 1996. If the Company had recognized compensation cost
                  in accordance with SFAS No. 123, net income and net income per
                  share on a basic and diluted  basis would have been reduced as
                  follows:
<TABLE>
<CAPTION>

                                                                                     December 31,
                                                          -------------------------------------------------------------------
                                                                        1997                              1996
                                                          ---------------------------------  --------------------------------
                                                                                Basic                            Basic Net
                                                               Net            Net Income           Net             (Loss)
                                                              Income          Per Share           (Loss)         Per Share
                                                          ---------------   ---------------  -----------------  -------------

                      <S>                                 <C>               <C>              <C>                <C>         
                      As reported ....................... $      341,310    $         0.84   $    (1,146,332)   $     (2.83)
                      Stock based compensation,
                         net of related tax effect ......        (68,725)            (0.17)                -              -
                                                          ---------------   ---------------  -----------------  -------------
                      As adjusted ....................... $      272,585    $         0.67   $    (1,146,332)   $     (2.83)
                                                          ===============   ===============  =================  =============
</TABLE>


                                      F-21
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE 9.  STOCK WARRANTS AND STOCK OPTION PLAN (Continued)

                  Stock Option Plan (Continued)
<TABLE>
<CAPTION>

                                                                                    December 31,
                                                         --------------------------------------------------------------------
                                                                       1997                               1996
                                                         ---------------------------------  ---------------------------------
                                                                              Diluted                           Diluted Net
                                                              Net            Net Income           Net             (Loss)
                                                             Income          Per Share          (Loss)           Per Share
                                                         ---------------   ---------------  ----------------   --------------

                      <S>                                <C>               <C>              <C>                <C>          
                      As reported ...................... $      341,310    $         0.84   $   (1,146,332)    $      (2.83)
                      Stock based compensation,
                         net of related tax effect .....        (68,725)            (0.17)               -                -
                                                         ---------------   ---------------  ----------------   --------------
                      As adjusted ...................... $      272,585    $         0.67   $   (1,146,332)    $      (2.83)
                                                         ===============   ===============  ================   ==============
</TABLE>

                  The fair value of the  options  granted in 1997 was based upon
                  the discounted value of future cash flows of the options using
                  the following assumptions:
<TABLE>

                      <S>                                                                 <C>  
                      Risk-free interest rate                                                6.13%
                      Expected life of the options                                        10 years
                      Expected dividends (as a percent of the fair value of the stock)       0.00%
                      Expected volatility                                                    0.00%
</TABLE>



                                      F-22
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE 10. EARNINGS (LOSS) PER COMMON SHARE

                  The  following  is  a   reconciliation   of  net  income  (the
                  numerator) and the weighted  average shares  outstanding  (the
                  denominator)  used in determining  basic and diluted  earnings
                  (loss) per share:
<TABLE>
<CAPTION>
 
                                                                                    Year Ended December 31, 1997
                                                                        -----------------------------------------------------
                                                                            Income             Shares           Per Share
                                                                          (Numerator)      (Denominator)          Amount
                                                                        ----------------  -----------------   ---------------

                    <S>                                                 <C>               <C>                 <C>
                    Basic earnings per share

                    Net income ........................................ $       341,310            405,710    $         0.84
                                                                                                              ===============

                    Effect of dilutive securities

                    Stock options .....................................               -                  -
                                                                        ----------------  -----------------

                    Dilutive earnings per share

                    Net income ........................................ $       341,310            405,710    $         0.84
                                                                        ================  =================   ===============
</TABLE>
<TABLE>
<CAPTION>

                                                                                    Year Ended December 31, 1996
                                                                        ------------------------------------------------------
                                                                            Income             Shares            Per Share
                                                                          (Numerator)       (Denominator)         Amount
                                                                        ----------------  ------------------  ----------------

                    <S>                                                 <C>               <C>                 <C>    
                    Basic earnings per share

                    Net loss .......................................... $   (1,146,332)             405,710   $        (2.83)
                                                                                                              ===============

                    Effect of dilutive securities

                    Stock options .....................................               -                   -
                                                                        ----------------  ------------------

                    Dilutive earnings per share

                    Net loss .......................................... $   (1,146,332)             405,710   $        (2.83)
                                                                        ================  ==================  ================
</TABLE>

                  The exercise of any  outstanding  stock  options would have no
                  dilutive effect on earnings per share because the option price
                  and average market price were equal.

                                      F-23
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE 11.          COMMITMENTS AND CONTINGENT LIABILITIES

                  In the normal course of business, the Company has entered into
                  off-balance-sheet   financial   instruments   which   are  not
                  reflected  in  the  financial   statements.   These  financial
                  instruments  include  commitments to extend credit and standby
                  letters of credit. Such financial  instruments are included in
                  the  financial  statements  when  funds are  disbursed  or the
                  instruments  become payable.  These  instruments  involve,  to
                  varying  degrees,  elements  of  credit  risk in excess of the
                  amount recognized in the balance sheet.

                  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 and  collateral  policies for
                  these  off-balance-sheet  financial instruments as it does for
                  on-balance-sheet  financial  instruments.  A  summary  of  the
                  Company's commitments is as follows:
<TABLE>
<CAPTION>

                                                                                        December 31,
                                                                            --------------------------------------
                                                                                   1997                 1996
                                                                            -----------------    -----------------

            <S>                                                             <C>                  <C>             
            Commitments to extend credit .................................. $      4,746,000     $      4,655,000
            Standby letters of credit .....................................           12,300               16,300
                                                                            -----------------    -----------------
                                                                            $      4,758,300     $      4,671,300
                                                                            =================    =================
</TABLE>

                  Commitments to extend credit  generally have fixed  expiration
                  dates or other termination  clauses and may require payment of
                  a fee.  Since many of the  commitments  are expected to expire
                  without being drawn upon, the total commitment  amounts do not
                  necessarily  represent  future cash  requirements.  The credit
                  risk  involved  in  issuing  these  financial  instruments  is
                  essentially  the same as that  involved in extending  loans to
                  customers.    The   Company    evaluates    each    customer's
                  creditworthiness  on  a  case-by-case  basis.  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.  Collateral  held varies but may
                  include  real  estate  and  improvements,   crops,  marketable
                  securities,  accounts receivable,  inventory,  equipment,  and
                  personal property.

                                      F-24
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE 11.          COMMITMENTS AND CONTINGENT LIABILITIES (Continued)

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

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


NOTE 12.          CONCENTRATIONS OF CREDIT

                  The Company originates primarily commercial,  residential, and
                  consumer   loans  to  customers  in  the  Coffee   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 Douglas,  Georgia
                  and surrounding areas.

                  Although the Bank's loan portfolio is diversified,  there is a
                  relationship in this region between the  agricultural  economy
                  and the economic  performance of loans made to nonagricultural
                  customers.  The Bank's lending  policies for  agricultural and
                  nonagricultural     customers     require    loans    to    be
                  well-collateralized  and  supported by cash flows.  Collateral
                  for agricultural loans include equipment, crops, livestock and
                  land.  Credit  losses from loans  related to the  agricultural
                  economy  is  taken  into   considerations   by  management  in
                  determining the allowance for loan losses.

                  A  substantial  portion  of these  loans are  secured  by real
                  estate in the Company's  primary  market area. In addition,  a
                  substantial  portion of the other real estate owned is located
                  in   those   same   markets.    Accordingly,    the   ultimate
                  collectibility  of the loan  portfolio and the recovery of the
                  carrying  amount of other real estate owned are 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.



                                      F-25
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE 12.          CONCENTRATIONS OF CREDIT (Continued)

                  The  Company  has a  concentration  of funds on deposit at its
                  primary  correspondent bank, Georgia Bankers Bank, at December
                  31, 1997, as follows:

                      Noninterest-bearing account                 $  3,524,698
                                                               =================



NOTE 13.          REGULATORY MATTERS

                  The Bank is subject to certain  restrictions  on the amount of
                  dividends  that  may  be  declared  without  prior  regulatory
                  approval.  Currently,  no  dividends  may be paid by the  Bank
                  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 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 Company and Bank capital amounts and
                  classification  are also subject to  qualitative  judgments by
                  the regulators about  components,  risk weightings,  and other
                  factors.

                  Quantitative  measures  established  by  regulation  to ensure
                  capital  adequacy require the Company and the Bank to maintain
                  minimum  amounts  and  ratios of total  and Tier I capital  to
                  risk-weighted  assets and of Tier I capital to average assets.
                  Management believes,  as of December 31, 1997, the Company and
                  the Bank meet all capital adequacy requirements to which it is
                  subject.

                  As of December 31, 1997, the most recent notification from the
                  OCC  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.


                                      F-26
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 13.          REGULATORY MATTERS (Continued)

                  Presented  below are the Bank's  actual  capital  amounts  and
                  ratios.  Detail  disclosures  related to the Company have been
                  excluded as they do not materially deviate from the disclosure
                  herein.
<TABLE>
<CAPTION>

                                                                                                             To Be Well
                                                                                    For Capital           Capitalized Under
                                                                                     Adequacy             Prompt Corrective
                                                           Actual                    Purposes             Action Provisions
                                                 ---------------------------   ----------------------  ------------------------
                                                     Amount         Ratio         Amount      Ratio        Amount       Ratio
                                                 ---------------  ----------   -------------  -------  ---------------  -------

                  <S>                            <C>              <C>          <C>            <C>      <C>              <C>       
                  As of December 31, 1997
                    Total Capital
                       (to Risk Weighted Assets):
                       FNB of Coffee County .... $    4,114,175      13.68%    $  2,405,746       8%   $    3,007,183      10%
                    Tier I Capital
                       (to Risk Weighted Assets):
                       FNB of Coffee County .... $    3,728,607      12.40%    $  1,202,873       4%   $    1,804,310       6%
                    Tier I Capital
                       (to Average Assets):
                       FNB of Coffee County .... $    3,728,607       8.24%    $  1,810,040       4%   $    2,262,550       5%
</TABLE>
<TABLE>
<CAPTION>

                                                                                                             To Be Well
                                                                                    For Capital           Capitalized Under
                                                                                     Adequacy             Prompt Corrective
                                                           Actual                    Purposes             Action Provisions
                                                 ---------------------------   ----------------------  ------------------------
                                                     Amount         Ratio         Amount      Ratio        Amount       Ratio
                                                 ---------------  ----------   -------------  -------  ---------------  -------

                  <S>                            <C>              <C>          <C>            <C>      <C>              <C>
                  As of December 31, 1996
                    Total Capital
                       (to Risk Weighted
                        Assets):
                        FNB of Coffee County ... $    3,310,365      11.30%    $  2,342,089       8%   $    2,927,611      10%
                         
                    Tier I Capital
                       (to Risk Weighted
                        Assets):
                        FNB of Coffee County ... $    2,944,414      10.10%    $  1,171,044       4%   $    1,756,566       6%
                                    
                    Tier I Capital
                       (to Average Assets):
                       FNB of Coffee County .... $    2,944,414       6.20%    $  1,914,080       4%   $    2,392,600       5%
</TABLE>


                                      F-27
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS

                  The following methods and assumptions were used by the Company
                  in  estimating  its  fair  value   disclosures  for  financial
                  instruments.  In cases  where  quoted  market  prices  are not
                  available, fair values are based on estimates using discounted
                  cash flow methods. Those methods are significantly affected by
                  the  assumptions  used,   including  the  discount  rates  and
                  estimates of future cash flows.  In that  regard,  the derived
                  fair value estimates  cannot be substantiated by comparison to
                  independent  markets and, in many cases, could not be realized
                  in  immediate  settlement  of  the  instrument.   The  use  of
                  different  methodologies  may have a  material  effect  on the
                  estimated fair value amounts.  Also, the fair value  estimates
                  presented herein are based on pertinent  information available
                  to management  as of December 31, 1997 and 1996.  Such amounts
                  have  not  been  revalued  for  purposes  of  these  financial
                  statements since those dates and, therefore, current estimates
                  of fair  value  may  differ  significantly  from  the  amounts
                  presented herein.

                  The following methods and assumptions were used by the Company
                  in  estimating   fair  values  of  financial   instruments  as
                  disclosed herein:

                  Cash, Due From Banks, and Federal Funds Sold:

                  The carrying  amounts of cash, due from banks,  and Federal
                  funds sold approximate their fair value.

                  Available For Sale Securities:

                  Fair  values  for  securities  are based on  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  methods,   using
                     interest  rates  currently  being  offered  for loans  with
                     similar terms to borrowers of similar credit quality.  Fair
                     values for impaired  loans are estimated  using  discounted
                     cash flow methods or underlying collateral values.

                                      F-28
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

                  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  discounted cash flow methods,
                     using   interest   rates   currently   being   offered   on
                     certificates.

                 Other Borrowings:

                     The  carrying  amounts of the  Company's  other  borrowings
                     approximate their fair value.

                 Off-Balance Sheet Instruments:

                     Fair values of the Company's  off-balance  sheet  financial
                     instruments are based on fees charged to enter into similar
                     agreements.  However,  commitments  to  extend  credit  and
                     standby  letters of credit do not  represent a  significant
                     value to the Company until such commitments are funded. The
                     Company has determined that these instruments do not have a
                     distinguishable  fair  value  and no fair  value  has  been
                     assigned.




                                      F-29
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

         Off-Balance Sheet Instruments:

         The  carrying   value  and  estimated  fair  value  of  the
         Company's financial instruments were as follows:
<TABLE>
<CAPTION>

                                                              December 31, 1997                    December 31, 1996
                                                       ---------------------------------   ----------------------------------
                                                          Carrying            Fair              Carrying            Fair
                                                           Amount            Value               Amount            Value
                                                       ----------------  ---------------   -----------------  ---------------
                                                                              (Dollars in Thousands)
                                                       ----------------------------------------------------------------------
                  <S>                                  <C>               <C>               <C>                <C>    
                  Financial assets:
                     Cash and short-term investments . $     4,958,600   $    4,958,600    $     12,166,622   $   12,166,622
                                                       ================  ===============   =================  ===============
                                                      
                     Investments in securities ....... $     6,025,822   $    6,025,822    $      7,370,526   $    7,370,526
                                                       ================  ===============   =================  ===============
                                                       

                     Loans ........................... $    31,679,747   $   31,458,423    $     27,345,643   $   25,398,258
                     Allowance for loan losses .......       1,159,173                -           1,520,385                -
                                                       ----------------  ---------------   -----------------  ---------------
                                                       
                                Loans, net ........... $    30,520,574   $   31,458,423    $     25,825,258   $   25,398,258
                                                       ================  ===============   =================  ===============
                                                     

                  Financial liabilities:
                     Noninterest-bearing demand ...... $     7,708,349   $    7,708,349    $      9,409,021   $    9,049,021
                     Interest-bearing demand .........       6,819,767        6,819,767           7,253,382        7,253,382
                     Savings .........................       1,832,359        1,832,359           1,778,551        1,778,551
                     Time deposits ...................      22,687,524       22,994,718          24,103,647       24,303,647
                                                       ----------------  ---------------   -----------------  ---------------
               
                                Total deposits ....... $    39,047,999   $   39,355,193    $     42,544,601   $   42,384,601
                                                       ================  ===============   =================  ===============
                                                      

                  Federal funds purchased ............ $       430,000   $      430,000    $              -   $            -
                                                       ================  ===============   =================  ===============
                                                  
                  Other borrowings ................... $     1,075,000   $    1,075,000    $      2,485,000   $    2,485,000
                                                       ================  ===============   =================  ===============
                  Notes payable, director ............ $       500,000   $      500,000    $        500,000   $      500,000
                                                       ================  ===============   =================  ===============
</TABLE>


                                      F-30
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS






NOTE 15. PARENT COMPANY FINANCIAL INFORMATION

                  The  following  information  presents  the  condensed  balance
                  sheets of FNC Bancorp,  Inc. and statements of income and cash
                  flows as of and for the  years  ended  December  31,  1997 and
                  1996.
<TABLE>
<CAPTION>

                                                   CONDENSED BALANCE SHEETS
                                                                                               1997                 1996
                                                                                       ------------------    -----------------

                   <S>                                                                 <C>                   <C>    
                   Assets
                      Cash ........................................................... $          55,294     $         66,591
                      Investment in subsidiary .......................................         3,738,573            3,356,055
                      Other Assets ...................................................            27,876               10,926
                                                                                       ------------------    -----------------

                                Total assets ......................................... $       3,821,743     $      3,433,572
                                                                                       ==================    =================

                   Liabilities:
                      Notes payable, directors ....................................... $         500,000     $        500,000
                      Other liabilities ..............................................            38,545                    -
                                                                                       ------------------    -----------------

                                Total liabilities ....................................           538,545              500,000
                                                                                       ------------------    -----------------

                   Stockholders' equity ..............................................         3,283,198            2,933,572
                                                                                       ------------------    -----------------

                                Total liabilities and stockholders' equity ........... $       3,821,743     $      3,433,572
                                                                                       ==================    =================
</TABLE>



                                      F-31
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE 15. PARENT COMPANY FINANCIAL INFORMATION (Continued)

                                                CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>

                                                                                              1997                 1996
                                                                                      ------------------    -----------------

                   <S>                                                                <C>                   <C>             
                   Income, interest ................................................. $           2,522     $         11,795
                                                                                      ------------------    -----------------

                   Expense
                      Interest ......................................................            38,545                    -
                      Other expense .................................................            13,819               28,423
                                                                                      ------------------    -----------------
                                                                                                 52,364               28,423
                                                                                      ------------------    -----------------

                                Loss before income tax benefits and
                                equity in undistributed earnings (loss)
                                of subsidiary .......................................           (49,842)             (16,628)

                   Income tax benefits ..............................................          (16,950)              (7,842)
                                                                                      ------------------    -----------------

                                Loss before equity in undistributed
                                earnings (loss) of subsidiary .......................           (32,892)              (8,786)

                   Equity in undistributed earnings (loss) of subsidiary ............           374,202          (1,137,546)
                                                                                      ------------------    -----------------

                                Net income (loss) ................................... $         341,310     $    (1,146,332)
                                                                                      ==================    =================

</TABLE>

                                      F-32
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




NOTE 15. PARENT COMPANY FINANCIAL INFORMATION (Continued)

                                              CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                                             1997                   1996
                                                                                     -------------------    -------------------
                    <S>                                                              <C>                    <C>    
                    OPERATING ACTIVITIES
                       Net income (loss) ........................................... $          341,310     $       (1,146,332)
                                                                                     -------------------    -------------------
                       Adjustments to  reconcile  net income  (loss) to net cash
                          used in operating activities:
                          Undistributed earnings (loss) of subsidiary ..............           (374,202)             1,137,546
                          Decrease in income taxes receivable ......................                  -                  2,187
                          Increase in deferred tax assets ..........................            (16,950)                (7,842)
                          Increase  in interest payable ............................             38,545                      -
                          Amortization .............................................                  -                  2,944
                                                                                     -------------------    -------------------
                            Total adjustments ......................................           (352,607)             1,134,835
                                                                                     -------------------    -------------------

                            Net cash used in operating activities ..................           (11,297)                (11,497)
                                                                                     -------------------    -------------------

                    INVESTING ACTIVITIES
                       Additional investment in subsidiary .........................                  -             (1,000,000)
                                                                                     -------------------    -------------------
                                                                                     

                            Net cash used in investing activities ..................                  -             (1,000,000)
                                                                                     -------------------    -------------------

                    FINANCING ACTIVITIES
                       Proceeds from notes payable .................................                  -                500,000
                                                                                     -------------------    -------------------
                                                                                    

                            Net cash provided by financing activities ..............                  -                500,000
                                                                                     -------------------    -------------------
                                                                                    

                    Net decrease in cash ...........................................           (11,297)               (511,497)

                    Cash at beginning of year ......................................             66,591                578,088
                                                                                     -------------------    -------------------

                    Cash at end of year ............................................ $           55,294     $           66,591
                                                                                     ===================    ===================
</TABLE>

                                      F-33