<PAGE>

                   U. S. Securities and Exchange Commission

                            Washington, D.C. 20549

                                  FORM 10-KSB

     [X]  ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
          SECURITIES EXCHANGE ACT OF 1934
                  For the fiscal year ended December 31, 1997

     [  ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
          SECURITIES EXCHANGE ACT OF 1934
              For the transition period from ________________ to _______________

                        COMMISSION FILE NUMBER 0-19030

                COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
                (Name of small business issuer in its charter)
                ----------------------------------------------

        Georgia                                            58-1856582
(State of incorporation)                                (I.R.S. Employer
                                                         Identification No.)

                  3844 ATLANTA HIGHWAY, HIRAM, GEORGIA 30141
                  ------------------------------------------
              (Address of principal executive offices)(Zip Code)

                                (770) 445-1014
                (Issuer's telephone number including area code)
                          --------------------------
        Securities registered pursuant to Section 12(b) of the Act: None

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

                         Common Stock, $2.50 par value
                               (Title of Class)
                          ---------------------------
     Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
 YES  X  NO
     ---    ---

     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the 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. [  ]

     Revenues for the Registrant's fiscal year ended December 31, 1997, total
$8,834,375.

The aggregate market value of the Registrant's outstanding Common Stock held by
nonaffiliates of the Registrant on March 17, 1998 was $10,424,383.  There were
842,008 shares of Common Stock outstanding as of March 17, 1998.

                      DOCUMENTS INCORPORATED BY REFERENCE
                      -----------------------------------

Portions of the Company's 1997 Annual Report to Stockholders are incorporated by
reference in Part II hereof, and portions of the Company's Proxy Statement for
the 1998 Annual Meeting of Stockholders to be held on April 15, 1998 are
incorporated by reference in Part III hereof.

     Transitional Small Business Disclosure Format (check one): Yes    ; No X
                                                                    ---    ---
<PAGE>

                COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
                          ANNUAL REPORT ON FORM 10-KSB
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

                               TABLE OF CONTENTS
                               -----------------
ITEM                                                                 PAGE
NUMBER                                                               NUMBER
------                                                               ------
                                    PART I

   1.       Description of Business....................................   2

   2.       Description of Property....................................  36

   3.       Legal Proceedings..........................................  37

   4.       Submission of Matters to a Vote of
            Security Holders...........................................  37

   4(A).    Executive Officers of the Company
            and the Bank...............................................  37


                                    PART II

   5.    Market for Common Equity and
         Related Stockholder Matters..................... .............  39

   6.    Management's Discussion and Analysis
         or Plan of Operation..........................................  39

   7.    Financial Statements..........................................  40

   8.    Changes in and Disagreements with Accountants on
         Accounting and Financial Disclosure...........................  40


                                   PART III


   9.     Directors, Executive Officers, Promoters
          and Control Persons; Compliance with
          Section 16(a) of the Exchange Act............................  40

   10.    Executive Compensation.......................................  41

   11.    Security Ownership of Certain Beneficial Owners
          and Management...............................................  41

   12.    Certain Relationships and Related Transactions...............  41

   13.    Exhibits and Reports on Form 8-K.............................  41

          Signatures...................................................  44

          Index of Exhibits............................................  46
<PAGE>

                                    PART I
                                    ------


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

OVERVIEW
--------

THE COMPANY

     Community Trust Financial Services Corporation (the Company) was
incorporated under the laws of the State of Georgia at the direction of
Community Trust Bank (the Bank) for the purpose of becoming a bank holding
company for the Bank.  On February 22, 1991, following the receipt of all
requisite corporate and regulatory approvals, the Bank became a wholly-owned
subsidiary of the Company, and the shareholders of the Bank became shareholders
of the Company, with the same proportional interests in the Company as they
previously held in the Bank (the Reorganization). Following the Reorganization,
the Bank has continued its business operations as a Georgia-chartered commercial
bank under the same name, articles of incorporation and bylaws.

     The primary activity of the Company currently is, and is expected to remain
for the foreseeable future, the ownership and operation of the Bank.  As a bank
holding company, the Company is intended to facilitate the Bank's ability to
serve its customers' requirements for financial services.  The holding company
structure also provides flexibility for expansion through the possible
acquisition of other financial institutions and the provision of additional
banking-related services, as well as certain non-banking 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.

     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 other than as described below.  The results of operations and
financial condition of the Company for the foreseeable future, therefore, will
be determined primarily by the results of operations and financial condition of
the Bank.

THE BANK

     The Bank's business consists primarily of attracting deposits from the
general public and, with these and other funds, originating real estate loans,
consumer loans, business loans, and residential and commercial construction
loans.   Funds not invested in the loan portfolio are invested by the Bank
primarily in U.S. Government and agency obligations and obligations of various
states and their political subdivisions.  In addition to deposits, sources of
funds for the Bank's loans and other investments include amortization and
prepayment of loans, sales of loans or participations in loans, and sales of its
investment securities.  The principal sources of income for the Bank are
interest and fees collected on loans, fees collected on deposit accounts and
interest and dividends collected on other investments.  The principal expenses
of the Bank are interest paid on deposits, employee compensation and benefits,
office expenses and other overhead expenses.  Management of the Bank currently
anticipates that the Bank will open a loan production office in Cobb County,
Georgia in the second quarter of 1998.  While management expects that the
opening of this office will enhance the Bank's ability to originate loans,
management does not believe that the opening of the loan production office will
have a material effect on the Bank or the Company.

                                      -2-
<PAGE>

OTHER SUBSIDIARIES

     In addition to the Bank, the Company has invested in three non-bank
subsidiaries: Community Loan Company (CLC); Cash Transactions, LLC (CashTrans);
and Metroplex Appraisals, Inc. (Metroplex).  These subsidiaries historically
have not had and, during 1998, are not expected to have, a significant effect on
the financial condition or results of operations of the Company.

     In 1995, the Company established CLC as a non-bank subsidiary for the
purpose of engaging in the consumer finance business.  CLC is structured as a
joint venture with the Company as majority owner of 75% of CLC's outstanding
capital stock.  The remaining 25% of CLC's outstanding capital stock is owned by
an individual who serves as President of CLC.  CLC's first office began
operations in September 1995, in Woodstock, Georgia, and CLC acquired two
consumer finance offices on April 1, 1996, in Rockmart, Georgia and Rossville,
Georgia, respectively.  CLC has entered into a definitive agreement to acquire a
consumer finance office located in Gainesville, Georgia.

     In 1997, the Company participated in the establishment of CashTrans.
CashTrans is a limited liability company that is owned 49% by the Company and
51% by an individual who serves as Chairman of CashTrans.  CashTrans is engaged
in the business of providing retail establishments (primarily convenience
stores) with automated teller machines that are owned by CashTrans and that
dispense cash or cash equivalents.  CashTrans engages in this business in
Georgia, Florida, South Carolina and Alabama.

     In 1992, the Company established Metroplex as a non-bank subsidiary for the
purpose of performing appraisals of real and personal property for the Bank as
well as other entities, such as financial institutions, mortgage companies and
insurance companies.  Metroplex is located in Dallas, Georgia.  Since Metroplex
represents less than 5% of the Company's consolidated assets and consolidated
net earnings, the financial condition and results of operations of the Company
are not significantly affected by the operations of Metroplex.


BUSINESS OF THE COMPANY
-----------------------

     The Company's earnings depend primarily on the Bank's "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 its 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 which is intended to control the impact of interest rate
fluctuations upon the Company's earnings and to make the yields on the Bank's
loan portfolio and other investments more responsive to its cost of funds, in
part by more closely matching the maturities of its interest-earning assets and
its interest-bearing liabilities, while still maximizing net interest income.
Nevertheless, the Bank is and will continue to be affected by changes in the
levels of interest rates and other factors beyond its control.

     Unless specifically noted below, the following information is presented on
a consolidated basis reflecting the Company's performance as a whole.  The
Company's results of operations are dependent primarily upon the results of
operations of the Bank, but also are affected, although not significantly, by
the operations of CLC, CashTrans  and Metroplex.  The information hereinafter
set forth as it relates generally to the "Company's" interest-earning assets,
loans and interest income includes CLC's loans, or interest income attributable
to such loans.  However, where such information specifically refers to the
"Bank" or refers to specific categories of the Company's interest-earning assets
other than consumer loans, it does not include loans held by CLC.  Similarly,

                                      -3-
<PAGE>

references generally to the "Company's" interest-bearing liabilities, interest
expense, non-interest income and non-interest expense include CLC and Metroplex
unless such references are specifically to the "Bank."

     For the fiscal years ended December 31, 1997 and 1996, the Company's
weighted average rate earned on all interest-earning assets was 9.58% and 9.63%,
respectively, and the Company's weighted average rate paid on all interest-
bearing liabilities for the same years was 4.40% and 4.41%, respectively.  The
Company's interest rate spread for the years ended December 31, 1997 and 1996
therefore was 5.17% and 5.23%, respectively, and its net interest income for
such years was $4,719,701 and $4,187,352, respectively.  For fiscal 1997, the
Company recorded net income of $1,038,807 or $1.24 basic earnings per share as
compared with net income of $1,057,884 or $1.26 basic earnings per share for
fiscal 1996.  The decrease in net income was due primarily to a 19.09% increase
in other expenses that resulted largely from an increase in salary and employee
benefits.  See "Item 7.  Management's Discussion and Analysis of Financial
Condition and Results of Operations."

     The table below sets forth certain additional measures of the Company's
performance for the periods indicated.  Average balances in the table, as well
as all average balances presented elsewhere in this report, were derived based
on daily balances whenever possible.  However, some average balances which
require data from the Company or CLC, as opposed to the Bank, were derived based
on month-end balances since the data processing systems for those entities do
not provide daily average balance information.  The use of month-end averages
does not materially alter any information given, and all averages are still
representative of the operations of the Company.
<TABLE>
<CAPTION>

                                                          Years Ended December 31,
                                                         ---------------------------
                                                           1997      1996     1995
                                                         --------  --------  -------
<S>                                                      <C>       <C>       <C>
      Net Interest Margin (Net interest
       income divided by average interest-
       earning assets)                                      5.93%     5.89%    5.66%

      Return on Average Assets
       (Net income divided by average
       total assets)...................................     1.19%     1.39%    1.37%

      Return on Average Equity
       (Net income divided by
       average equity).................................    14.44%    16.65%   17.01%

      Equity-to-Assets (Average equity
       divided by average total assets)................     8.27%     8.32%    8.06%

      Loans to Deposits (Average
       loans divided by average
       daily deposits).................................    67.75%    65.94%   62.31%

      Dividend Payout Ratio (Dividends
       declared by the Company divided by net income)..    20.20%    19.77%   23.58%
</TABLE>

NET INTEREST INCOME
-------------------

          The following table sets forth information with respect to interest
income from average interest-earning assets, expressed both in dollars and
yields, and interest expense on average interest-bearing liabilities, expressed
both in dollars and rates, for the periods indicated.  The table includes loan
yields which reflect the amortization of deferred loan origination and
commitment fees. Interest income from investment securities includes the
accretion of discounts and amortization of premiums.

                                      -4-
<PAGE>

<TABLE>
<CAPTION>
                                                         Years Ended December 31,
                             -----------------------------------------------------------------------------
                                              1997                                   1996
                             ------------------------------------   --------------------------------------
                                            Interest      Average                   Interest     Average
                               Average       Income/      Yield/      Average       Income/      Yield/
                               Balance     Expense(1)      Rate       Balance     Expense(1)      Rate
                             -----------  -------------  ---------  -----------  -------------  --------
<S>                          <C>          <C>            <C>        <C>          <C>            <C>
ASSETS

Interest-earning assets:
  Loans(1)(2)..............  $52,395,119  $6,075,240        11.60%  $46,043,727  $5,462,059       11.86%
  Investment securities
     Taxable...............   18,771,145   1,114,266         5.94%   18,508,042   1,051,039        5.68%
     Tax-exempt(3).........    4,051,859     197,710         4.88%    2,404,861     114,474        4.76%
  Federal funds sold.......    4,395,506     243,198         5.53%    4,163,525     221,396        5.32%
                             -----------  ----------        -----   -----------  ----------       -----
Total interest-earning
 assets....................  $79,613,629  $7,630,414         9.58%  $71,120,155  $6,848,968        9.63%

Cash and other assets......    7,360,685                              6,533,382
                             -----------                            -----------

     Total assets..........  $86,974,314                            $77,653,537
                             ===========                            ===========

LIABILITIES AND
 STOCKHOLDERS' EQUITY

Interest-bearing
 liabilities:
Deposits
   NOW accounts............  $ 9,058,370  $  165,008         1.82%  $ 8,728,202  $  194,491        2.23%
   Money market accounts...    8,170,372     232,547         2.85%    7,747,518     216,441        2.79%
   Savings deposits........   13,017,166     391,036         3.00%   12,200,662     375,845        3.08%
   Time deposits, $100,000
    and over...............   13,584,221     817,029         6.01%   11,321,593     663,640        5.86%
   Time deposits, other....   21,879,936   1,276,223         5.83%   19,834,342   1,173,908        5.92%
                             -----------  ----------        -----   -----------  ----------       -----
     Total
      interest-bearing
      deposits.............  $65,710,065  $2,881,843         4.39%  $59,832,317  $2,624,325        4.39%

Other interest-bearing
 liabilities...............      340,317      25,281         7.43%      489,934      37,291        7.61%
Long-term debt.............       46,164       3,589         8.00%            0           0        0.00%
                             -----------  ----------        -----   -----------  ----------       -----
     Total
      interest-bearing
      liabilities..........  $66,096,546  $2,910,713         4.40%  $60,322,251  $2,661,616        4.41%

Other liabilities:
  Demand deposits..........  $11,626,615                            $ 9,991,772
  Accrued interest payable
   and other liabilities.......2,058,989                                985,766
                              -----------                            -----------
     Total other
      liabilities..........   13,685,604                             10,977,538

        Total liabilities..  $79,782,150                            $71,299,789

Stockholders' equity.......    7,192,164                              6,353,748

    Total liabilities
    and stockholders'
     equity................  $86,974,314                            $77,653,537
                             ===========                            ===========

FINANCIAL RATIOS

Excess of interest-earning
assets over interest-
bearing liabilities........  $13,517,083                            $10,797,904
                             ===========                            ===========

Ratio of interest-earning
 assets to interest-bearing
  liabilities..............                                120.45%                               117.90%

Net interest income........               $4,719,701                            $ 4,187,352
                                          ==========                            ===========

Interest rate spread
 (differencebetween rate earned on
  interest-earning assets and rate
  paid on interest-bearing liabilities).............         5.18%                                 5.22%

Net interest margin (net
 interest
 income divided by average
 interest-earning assets)..                                  5.93%                                 5.89%



<CAPTION>
                                     Years Ended December 31,
                               -----------------------------------
                                                1995
                               -----------------------------------
                                             Interest     Average
                                 Average     Income/      Yield/
                                 Balance     Expense(1)   Rate
                               -----------  -------------  -------
<S>                            <C>          <C>            <C>
ASSETS

Interest-earning assets:
  Loans(1)(2)..............    $36,660,129  $4,307,281      11.69%
  Investment securities
     Taxable...............     17,834,704     984,611       5.52%
     Tax-exempt(3).........      1,784,584      79,363       4.45%
  Federal funds sold.......      3,291,110     192,222       5.84%
                               -----------  ----------      -----
Total interest-earning
 assets....................    $59,570,527  $5,563,477       9.30%

Cash and other assets......      4,983,549
                               -----------

     Total assets..........    $64,554,076
                               ===========

LIABILITIES AND
 STOCKHOLDERS' EQUITY

Interest-bearing
 liabilities:
Deposits
   NOW accounts............    $ 6,949,988  $  179,261       2.58%
   Money market accounts...      7,014,853     216,839       3.09%
   Savings deposits........     12,064,705     436,236       3.62%
   Time deposits, $100,000
    and over...............      7,698,395     409,190       5.32%
   Time deposits, other....     16,442,425     926,137       5.63%
                               -----------  ----------      -----
     Total
      interest-bearing
      deposits.............    $50,170,366  $2,167,663       4.32%

Other interest-bearing
 liabilities...............         11,507         790       6.87%
Long-term debt.............              0           0       0.00%
                               -----------  ----------      -----
     Total
      interest-bearing
      liabilities..........    $50,181,873  $2,168,453       4.32%

Other liabilities:
  Demand deposits..........    $ 8,593,281
  Accrued interest payable
   and
   other liabilities.......        574,520
                               -----------
     Total other
      liabilities..........      9,167,801

        Total liabilities..    $59,349,674

Stockholders' equity.......      5,204,402

    Total liabilities
    and stockholders'
     equity................    $64,554,076
                               ===========

FINANCIAL RATIOS

Excess of interest-earning
assets over interest-
bearing liabilities........    $ 9,388,654
                               ===========

Ratio of interest-earning
 assets
 to interest-bearing
  liabilities..............                                118.71%

Net interest income........                $ 3,395,024
                                            ==========

Interest rate spread
 (difference
 between rate earned on
  interest-
 earning assets and rate
  paid on
 interest-bearing
  liabilities).............                                  4.98%

Net interest margin (net
 interest
 income divided by average
 interest-earning assets)..                                  5.66%
</TABLE>

(1)  Interest income on loans includes amortization of deferred loan fees and
other discounts of $811,805, $763,558, and $549,535, for the fiscal years ended
December 31, 1997, 1996, and 1995, respectively.
(2)  Nonperforming loans are included in the computation of average loan
balances, and interest income on such loans is recognized on a cash basis.
(3)  The average yield computed on tax-exempt securities is computed using
actual yields rather than tax-equivalent yields.

                                      -5-
<PAGE>

     The following table sets forth information regarding the weighted average
contractual yields earned on the Company's interest-earning assets and the
weighted average interest rates paid on the Company's interest-bearing
liabilities outstanding at December 31, 1997.  Investment securities are shown
at the carrying value, which is the fair market value for securities held
available for sale, and the amortized cost for securities held to maturity.

                                                                  Average
                                                      Amount     Yield/Rate
                                                      ------     ----------
Interest-earning assets:

  Loans.........................................  $ 57,188,857       11.74%
  Investment securities
    Taxable securities..........................    17,826,801        5.67%
    Tax-exempt securities.......................     5,194,210        4.73%
  Federal funds sold............................     4,510,000        5.45%
                                                     ---------        -----
      Total interest-earning assets.............  $ 84,719,868        9.62%

Interest-bearing liabilities:

  Demand deposits...............................  $ 12,105,179        0.00%
  NOW accounts..................................     9,710,739        1.72%
  Money market accounts.........................     8,933,508        2.89%
  Savings deposits..............................    14,808,283        3.06%
  Time deposits.................................    22,230,949         4-6%
                                                    14,192,445         6-8%

  Total certificates of deposit.................    36,423,394        5.94%
                                                    ----------        -----
    Total deposits..............................  $ 81,981,103        4.33%

  Long term debt................................       800,000        8.00%
  Other interest-bearing liabilities............        50,000        6.00%
    Total interest-bearing liabilities..........  $ 82,781,103        4.35%


     Changes in interest income and interest expense are attributable to three
factors: (i) a change in volume or amount of an asset or liability; (ii) a
change in interest rates; or (iii) a change caused by the combination of changes
in volume and interest rates.  The following table describes the extent to which
changes in interest rates and changes in volume of interest-earning assets and
interest-bearing liabilities have affected the Company's interest income and
expense during the periods indicated.  For each category of interest-earning
assets and interest-bearing liabilities, information is provided as to changes
attributable to change in volume (change in volume multiplied by old rate) and
change in rates (change in rate multiplied by old volume).  The net change
attributable to changes in both volume and rate has been allocated
proportionately to the change due to volume and the change due to rate.

                                      -6-
<PAGE>

<TABLE>
<CAPTION>

                                           Year Ended December 31,            Year Ended December 31,
                                            1997 Compared to 1996              1996 Compared to 1995
                                          -------------------------          -------------------------
                                                     Rate/      Net                    Rate/        Net
                                        Volume       Yield     Change      Volume      Yield       Change
                                        ------       -----     ------      ------      -----       ------
<S>                                    <C>        <C>         <C>        <C>         <C>         <C>
Interest income:
 Loans (1)(2)........................  $738,838   ($125,657)  $613,181   $1,112,767  $  42,011   $1,154,778
 Investment securities (3)...........   108,945      37,518    146,463       71,522     30,017      101,539
 Federal funds sold..................    12,625       9,177     21,802       47,543    (18,369)      29,174
                                         ------       -----     ------       ------    -------       ------
  Total interest income..............  $860,408    ($78,962)  $781,446   $1,231,832  $  53,659   $1,285,491

Interest expense:
 NOW accounts........................     7,127     (36,610)   (29,483)      41,791    (26,561)      15,230
 Money market accounts...............    11,978       4,128     16,106       21,513    (21,911)        (398)
 Savings deposits....................    24,697      (9,506)    15,191        4,864    (65,255)     (60,391)
 Time deposits, $100,000 and over....   135,688      17,701    153,389      208,832     45,618      254,450
 Time deposits, other................   119,531     (17,217)   102,314      198,837     48,934      247,771
                                        -------     -------    -------      -------     ------      -------
  Total deposits.....................  $299,021    ($41,504)  $257,517   $  475,837   ($19,175)  $  456,662

 Other interest-bearing liabilities..    (7,739)       (681)    (8,420)      36,406         95       36,501
                                         ------        ----     ------       ------         --       ------


   Total interest expense............   291,282     (42,185)   249,097      512,243    (19,080)     493,163
                                        -------     -------    -------      -------    -------      -------

Net interest income (expense)........  $569,126    ($36,777)  $532,349     $719,589    $72,739     $792,328

</TABLE>

 ___________
(1) Loan amounts include nonaccruing loans.

(2) Interest income includes the portion of loan fees recognized in the
respective periods.

(3) Changes due to rate and volume on investment securities have been computed
using actual yields on tax-exempt securities rather than tax-equivalent yields.
Yields are computed on the carrying value of the securities.



     The following table sets forth the repricing of the Company's interest-
earning assets and interest-bearing liabilities as of December 31, 1997.  The
time periods in the table represent the period, following December 31, 1997,
during which an asset or liability matures or can be repriced. This interest
sensitivity gap table is designed to monitor the Company's interest rate risk
exposure within the designated time period.  In order to control interest rate
risk, management regularly monitors the volume of interest sensitive assets
relative to interest sensitive liabilities over specific time intervals.  The
Company's interest rate management policy is to attempt to maintain a relatively
stable net interest margin in periods of interest rate fluctuations.  The
Company's policy is to attempt to maintain a ratio of cumulative gap to total
interest sensitive assets of negative 10.00% to positive 10.00% in the time
period of one year or less.  The following table reflects that the Company's
interest-earning assets and interest-bearing liabilities which reprice in the
time period of one year or less are closely matched and within the Company's
policy guidelines.

                                      -7-
<PAGE>

<TABLE>
<CAPTION>

                                             0 to 3        4 to 6        7 to 12        1 to 5        Over 5
                                             Months        Months        Months         Years         Years         Total
                                             ------        ------        -------        ------        ------        -----
Interest Sensitive Assets
-------------------------
<S>                                     <C>           <C>           <C>           <C>           <C>           <C>
Fed Funds Sold........................  $ 4,510,000           -0-           -0-           -0-           -0-   $ 4,510,000
Investment Securities
   Taxable (1)........................    2,372,207       664,681     1,525,754    12,451,565       812,594    17,826,801
   Tax-exempt (1).....................          -0-           -0-       250,974     1,461,193     3,482,043     5,194,210
Loans (2)
   Fixed rate.........................    3,631,835     1,520,843       756,226       211,766           -0-     6,120,670
   Adjustable rate....................   25,551,791     1,477,700       707,077       209,052           -0-    27,945,620
   Scheduled payments.................    4,343,221     2,276,492     4,170,152    11,801,957       138,410    22,730,232
                                        -----------   -----------   -----------   -----------   -----------   -----------

Total Interest-Sensitive Assets.......  $40,409,054   $ 5,939,716   $ 7,410,183   $26,135,533   $ 4,433,047   $84,327,533
                                        ===========   ===========   ===========   ===========   ===========   ===========

Interest Sensitive Liabilities
------------------------------
NOW...................................  $ 9,710,739           -0-           -0-           -0-           -0-   $ 9,710,739
Money Market..........................    8,933,508           -0-           -0-           -0-           -0-     8,933,508
Savings...............................   14,808,283           -0-           -0-           -0-           -0-    14,808,283
Time Deposits.........................    5,063,813     4,630,932     5,662,517     6,232,018           -0-    21,589,280
Time, in excess of $100,000...........    4,901,321     1,327,957     2,992,309     5,612,527           -0-    14,834,114
Other interest-bearing liabilities....          -0-        50,000           -0-           -0-           -0-        50,000
Long-term debt........................      800,000           -0-           -0-           -0-           -0-       800,000
                                        -----------   -----------   -----------   -----------   -----------   -----------

Total Interest Sensitive Liabilities..  $44,217,664   $ 6,008,889   $ 8,654,826   $11,844,545   $       -0-   $70,725,924
                                        ===========   ===========   ===========   ===========   ===========   ===========

Interest Sensitivity Gap..............   (3,808,610)      (69,173)   (1,244,643)   14,290,988     4,433,047    13,601,609
Cumulative Gap........................   (3,808,610)   (3,877,783)   (5,122,426)    9,168,562    13,601,609

Ratio of cumulative gap to total
   interest sensitive assets..........       (4.52)%       (4.60)%       (6.07)%        10.87%        16.13%

</TABLE>

-----------------
(1) All investment securities are shown at the carrying value.

(2) Non-performing loans are not included as interest-earning assets.



LENDING ACTIVITIES
------------------

GENERAL

      At December 31, 1997, the Company's loan portfolio constituted
approximately 61.32% of the Company's total assets.  The following table sets
forth the composition of the Company's loan portfolio at the indicated dates.

<TABLE>
<CAPTION>

                                                At December 31,
                                 -----------------------------------------
                                       1997                   1996
                                 ------------------     ------------------
                                 Amount     Percent     Amount     Percent
                                 ------     -------     ------     -------
<S>                           <C>           <C>      <C>           <C>
Commercial, financial,
 and agricultural...........  $ 7,765,358    13.58%  $ 5,840,546    11.82%

Real estate - construction..    8,308,349    14.53%    7,274,577    14.72%

Real estate - mortgage......   30,833,493    53.91%   26,936,164    54.50%

Consumer loans..............   10,281,657    17.98%    9,374,426    18.96%
                               ----------    -----     ---------    ------

Total loans.................  $57,188,857   100.00%  $49,425,713   100.00%
                              ===========   ======   ===========   =======

</TABLE>

                                      -8-
<PAGE>

     The following table sets forth certain information as of December 31, 1997
regarding loans in the Company's loan portfolio with fixed interest rates and
with floating or adjustable interest rates. All loans with floating or
adjustable interest rates reprice at least annually based upon changes in a
"prime" interest rate or other specified index.

<TABLE>
<CAPTION>

                                      Fixed-Rate               Floating or Adjustable Rate
                               -------------------------       ---------------------------
                                              Percent of                       Percent of
                                Amount        Portfolio          Amount        Portfolio
                               --------       ----------         ------        ----------
<S>                           <C>             <C>             <C>              <C>
Commercial, financial
and agricultural............  $ 5,640,835       9.86%         $ 2,124,523        3.71%

Real estate - construction..    1,141,951       2.00%           7,166,398       12.53%

Real estate - mortgage......   12,631,798      22.09%          18,201,695       31.83%

Consumer....................   10,243,218      17.91%              38,439         .07%
                               ----------      ------              ------         ----

    Total...................  $29,657,802      51.86%         $27,531,055       48.14%
                              ===========      =====          ===========       =====

</TABLE>

     At December 31, 1997, the total amount of loans due after one year which
had fixed rates of interest was $15,885,673, while the total amount of loans due
after one year with floating or adjustable rates of interest was $16,394,920.

     The following table sets forth the scheduled maturities of the loans in the
Company's loan portfolio as of December 31, 1997 based on their contractual
terms to maturity.  Overdrafts are reported as due in less than one year.  Loans
unpaid at maturity are renegotiated based on current market rates and terms.

<TABLE>
<CAPTION>

                                          Loans Maturing
                                ------------------------------------
                                Less Than   One to Five   More than
                                One Year       Years     Five Years      Total
                                --------    -----------  -----------   ---------
<S>                            <C>          <C>          <C>          <C>
Commercial, financial
and agricultural.............  $ 3,522,267  $ 2,492,826  $ 1,750,265  $ 7,765,358

Real estate - construction..     8,308,349            0            0    8,308,349

Real estate - mortgage.......    8,920,808    8,922,252   12,990,433   30,833,493

Consumer loans...............    4,156,840    6,075,702       49,115   10,281,657
                                 ---------    ---------       ------   ----------

    Total....................  $24,908,264  $17,490,780  $14,789,813  $57,188,857
                               ===========  ===========  ===========  ===========

</TABLE>

                                      -9-
<PAGE>

TYPES OF LOANS

Commercial, Financial, and Agricultural Loans

     Commercial, financial, and agricultural loans, hereinafter referred to as
commercial loans (including non-real estate loans for agricultural purposes but
excluding commercial construction loans), totaled approximately $7,765,358 or
13.58% of the Company's  loan portfolio at December 31, 1997.  All commercial
loans are held in the Bank's loan portfolio.  These loans consist of loans and
lines of credit to individuals, partnerships and corporations for a variety of
business purposes, such as accounts receivable and inventory financing,
equipment financing, business expansion and working capital.  The terms of the
Bank's commercial loans generally range from three months to seven years, and
the loans generally carry interest rates which adjust in accordance with changes
in the prime rate.  Substantially all of the Bank's commercial loans are secured
and guaranteed by the principals of the business.

     Loans secured by marketable equipment are required to be amortized over a
period not to exceed 84 months.  Generally, loans secured by current assets such
as inventory or accounts receivable are revolving lines of credit with annual
maturities, however, loans made for permanent working capital and secured by
inventory or accounts receivable are required to be amortized over a period not
to exceed 60 months.  Loans secured by chattel mortgages and accounts receivable
may not exceed 80% of their market value.  Loans secured by listed stocks,
municipal bonds and mutual funds may not exceed 75% of their market value.
Unsecured short-term loans and lines of credit must meet criteria set by the
Bank's Loan Committee.  All loans in excess of $10,000 must be supported by
current financial statements, and such financial statements must be updated
annually.  Commercial loans generally entail a greater credit risk than
residential mortgage loans but also provide a higher yield than residential
mortgage loans and add diversity to the loan portfolio.

Real Estate - Construction Loans

     Approximately $8,308,349 or 14.53% of the Company's loans outstanding at
December 31, 1997 were construction loans and acquisition and development loans.
All construction and acquisition and development loans are held in the Bank's
loan portfolio.  The Bank makes residential construction loans to owner-
occupants and to persons building residential properties for resale.  The
majority of the Bank's construction loans are made to residential real estate
developers for speculative single-family residential properties.  Construction
loans are usually variable rate loans made for terms of six months, but
extensions are permitted if construction has continued satisfactorily and if the
loan is current and other circumstances warrant the extension.  Construction
loans are limited to 85% of the appraised value of the lot and the completed
value of the proposed structure.  In response to competitive conditions, the
Bank permits a portion of its single family residential construction loans
extended to builders to be made without commitments for "take-out" or permanent
financing from third parties.

                                      -10-
<PAGE>

     Construction financing generally is considered to involve a higher degree
of credit risk than permanent mortgage financing of residential properties, and
this additional risk usually is reflected in higher interest rates.  The higher
risk of loss on construction loans is attributable in large part to the fact
that loan funds are estimated and advanced upon the security of the project
under construction, which is of uncertain value prior to the completion of
construction.  Moreover, because of the uncertainties inherent in estimating
construction costs, delays arising from labor problems, material shortages and
other unpredictable contingencies, it is relatively difficult to accurately
evaluate the total loan funds required to complete a project and to accurately
evaluate the related loan-to-value ratios.  If the estimates of construction
costs and the salability of the property upon completion of the project prove to
be inaccurate, the Bank may be required to advance funds beyond the amount
originally committed to permit completion of the project.  If the estimate of
value proves to be inaccurate, the Bank may be confronted, at or prior to the
maturity of the loan, with a project with a value which is insufficient to
assure full repayment.

     The Bank's underwriting criteria are designed to evaluate and minimize the
risk of each construction loan.  Among other items, the Bank considers evidence
of the availability of permanent financing or a take-out commitment to the
borrower, the financial strength and reputation of the borrower, an independent
appraisal and review of cost estimates, market conditions, and, if applicable,
the amount of the borrower's equity in the project, pre-construction sale or
leasing information and cash flow projections of the borrower.

Real Estate - Mortgage Loans

     At December 31, 1997, real estate - mortgage loans totaled approximately
$30,833,493 or 53.91% of the Company's loan portfolio.  Real estate - mortgage
loans include all loans secured by real estate for purposes other than
construction or aquisition and development and are hereinafter referred to as
real estate loans.   All real estate loans are held in the Bank's loan
portfolio.  Of this amount, approximately $12,067,065 or 21.10% of the Company's
loan portfolio was comprised of loans secured by one to four family residential
properties, including home equity loans (loans secured by the equity in the
borrower's residence but not necessarily for the purpose of home improvement).
Most of these home equity loans are made at fixed interest rates for terms of
one to three years with balloon payment provisions and amortized over a 10-15
year period. Another product called the "Community Equity Line" is offered by
the Bank which allows consumers to borrow with low closing costs on the equity
in their homes.  This product is a variable rate revolving line of credit,
having an outside maturity of 5 years with 1.5% of the average daily balance due
monthly.  The Bank's experience indicates that real estate loans normally remain
outstanding for much shorter periods (seven years on average) than their stated
maturity because the borrowers repay the loans in full either upon the sale of
the secured property or upon the refinancing of the original loan.

     In the case of owner occupied single family residences, real estate loans
are made for up to 85% of the value of the property securing the loan, based
upon an appraisal if the loan amount is over $25,000.  When the loan is secured
by real estate containing a non-owner occupied dwelling of one to four family
units, loans generally are made for up to 80% of the value, based upon an
appraisal IF

                                      -11-
<PAGE>

the loan amount is over $25,000. The Bank also requires title insurance to
insure the priority of the property lien on its real estate loans over $25,000
and requires fire and casualty insurance on all of its loans.

     The real estate loans originated by the Bank contain a "due-on-sale" clause
which provides that the Bank may declare the unpaid balance of the loan
immediately due and payable upon the sale of the mortgaged property.  Such
clauses are an important means of reducing the average loan life and increasing
the yield on existing fixed-rate real estate loans, and it is the Bank's policy
to enforce due-on-sale clauses.

     At December 31, 1997, the remainder of the real estate loan portfolio,
approximately $18,766,428 or 32.81% of the Company's loan portfolio, was
comprised of non-farm nonresidential real estate loans (including commercial
real estate loans and loans secured by raw land).


Consumer Loans

     At December 31, 1997, consumer loans totaled approximately $10,281,657 or
17.98% of the Company's loan portfolio.  Approximately $8,863,432 or 86.21% of
these loans are held in the Bank's loan portfolio, with the remainder held in
CLC's loan portfolio.

     The Bank makes both secured and unsecured consumer loans for a variety of
personal and household purposes.  Most of the Bank's consumer loans are
automobile loans, boat loans, property improvement loans and loans to depositors
on the security of their certificates of deposit.  These loans are generally
made for terms of up to five years at fixed interest rates.  The Bank considers
consumer loans to involve a relatively high credit risk compared to real estate
loans.  Consumer loans, therefore, generally yield a relatively high return to
the Bank and provide a relatively short maturity.  The Bank believes that the
generally higher yields and the shorter terms available on various types of
consumer loans tend to offset the relatively higher risk associated with such
loans, and contribute to a profitable spread between the Bank's average yield on
earning assets and the Bank's cost of funds.

     At December 31, 1997, consumer loans held in CLC's loan portfolio totaled
approximately $1,418,225 or 2.48% of the Company's loan portfolio.  CLC, a
consumer finance company, makes loans for up to $3,000 with original maturities
of up to three years under the Georgia Industrial Loan Act (GILA).  The Company
considers these loans to involve a relatively high credit risk compared to other
loans in the Company's portfolio.  These consumer loans generally yield a higher
return to the Company than consumer loans originated by the Bank.  The Company
believes that the generally higher yields on CLC's loan portfolio offset the
higher risk associated with such loans and contribute to a profitable spread
between the Company's yield on earning assets and the Company's cost of funds.

     In May 1996, the Bank began to issue MasterCard and VISA credit cards to
applicants who meet the Bank's credit standards.  The credit approval policy is
similar to that which the Bank uses

                                      -12-
<PAGE>

for any consumer loan customer. As of December 31, 1997, credit card loans
totaled approximately $1,127,266, or 1.97% of the Company's gross loan
portfolio. The Bank considers credit card loans to involve a relatively high
credit risk compared to other types of loans offered by the Bank, even though
management considers its credit approval policy to be conservative. Credit card
loans, therefore, generally yield a relatively high return to the Bank. The Bank
believes that the generally higher yields available on credit card loans tend to
offset the relatively higher risk associated with such loans, and contribute to
a profitable spread between the Bank's average yield on earning assets and the
Bank's cost of funds.

ORIGINATION, PURCHASE AND SALE OF LOANS

     The Bank originates loans primarily in Paulding County, Georgia.  The Bank
also originates loans in Cobb, Douglas, and Bartow Counties, each of which is
adjacent to Paulding.  Loans are originated by eight loan officers who operate
from the Bank's offices in Hiram and Dallas, Georgia. These loan officers
actively solicit loan applications from existing customers, local manufacturers
and retailers, builders, real estate developers, real estate agents and others.
The Bank also receives numerous loan applications as a result of customer
referrals and walk-ins to its offices.  Management of the Bank currently
anticipates that the Bank will open a loan production office in Cobb County,
Georgia in the second quarter of 1998.  Management expects to have one lender
who will originate loans from the Cobb location.

     Upon receipt of a loan application and all required supporting information
from a prospective borrower, the Bank obtains a credit report and verifies
specific information relating to the loan applicant's employment, income and
creditworthiness.  For significant extensions of credit, a certified appraisal
of the real estate intended to secure the proposed loan is undertaken by an
independent appraiser approved by the Bank.  The Bank's loan officers then
analyze the credit worthiness of the borrower and the value of any collateral
involved.

     The Bank's loan approval process is intended to be conservative but also
responsive to customer needs.  Loans are approved in accordance with the Bank's
written loan policy, which provides for several tiers of approval authority,
based on a borrower's aggregate debt with the Bank. The President, the Executive
Vice President, the Senior Vice-President of Asset Quality, and the Vice-
President have the authority to approve loans of up to $50,000.  All other loan
officers have the authority to approve secured loans of up to $35,000.  There is
a Loan Committee comprised of the senior officers of the Bank which must approve
any loan that increases the borrower's aggregate indebtedness above an
individual officer's limit, but that is not more than $100,000.  The Loan
Committee of the Board of Directors, comprised of the President and five non-
employee Directors, must approve all loans over $100,000, and all lending
relationships where a borrower's aggregate indebtedness to the Bank exceeds
$100,000.

     From time to time, the Bank may participate in loans with other financial
institutions by either buying or selling part of a loan.  The purchase of a loan
participation allows the Bank to expand its loan portfolio and increase
profitability while still maintaining the high credit standards which are

                                      -13-
<PAGE>

applied to all extensions of credit made by the Bank.  The sale of loan
participations allows the Bank to make larger loans which it otherwise would be
unable to make due to capital or other funding considerations.  For 1997 and
1996, the Bank sold loan participations of approximately $4,317,244 and
$1,230,200 respectively, and purchased loan participations of approximately
$2,104,279 and $400,000, respectively.

     CLC originates loans primarily in Cherokee, Polk, and Walker Counties,
which are all located in northwest Georgia.  Loans are originated by nine
lenders who operate from CLC's offices in Rockmart, Georgia, Rossville, Georgia,
and Woodstock, Georgia.  These lenders actively solicit loan applications from
existing customers.  CLC also originates loans through a conditional sales
contract program with two retailers at this time.  CLC intends to expand the
program with similar arrangements through other retailers.  All loans made
through this program must meet CLC's ordinary credit standards.  CLC receives
numerous loan applications as a result of customer referrals and walk-ins to its
offices.  CLC has entered into a definitive agreement to acquire a consumer
finance office located in Gainesville, Georgia.  Upon consummation of this
transaction, management of CLC expects to have two lenders operating from this
office.

LOAN FEE INCOME

     In addition to interest earned on loans, the Bank receives origination fees
for making loans, commitment fees for making certain loans, and other fees for
miscellaneous loan-related services. Such fee income varies with the volume of
loans made, prepaid or sold, and the rates of fees vary from time to time
depending on the supply of funds and competitive conditions.

     Commitment fees are charged by the Bank to the borrower for certain loans
and are calculated as a percentage of the principal amount of the loan.  These
fees normally are deducted from the proceeds of the loan and generally range
from 1/2% to 2% of the principal amount, depending on the type and volume of
loans made and market conditions such as the demand for loans, the availability
of money and general economic conditions.

     The Bank also receives miscellaneous fee income from late payment charges,
overdraft fees, property inspection fees, and miscellaneous services related to
its existing loans.  For the year ended December 31, 1997, the Bank recognized
origination, commitment and other loan fees totaling $575,498, which equaled
12.19% of the Company's net interest income for such year.  For the years ended
December 31, 1997 and 1996, the Bank recognized origination, commitment and
other loan fees totaling $651,219 and $537,630, respectively, which equaled
15.55% and 15.84%, respectively, of the Company's net interest income for such
years.

     CLC receives miscellaneous fee income from late payment charges, loan fees,
maintenance fees, and miscellaneous services related to its existing loans.  For
the year ended December 31, 1997, CLC recognized loan fees totaling $236,307,
which equaled 5.01% of the Company's net interest

                                      -14-
<PAGE>

income for such year. For the year ended December 31, 1996, CLC recognized loan
fees totaling $186,010, which equaled 4.44% of the Company's net interest income
for such year.

PROBLEM LOANS AND ALLOWANCE FOR LOAN LOSSES

Problem Loans

     In originating loans, the Company recognizes that credit losses will be
experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the creditworthiness of the borrower over the term of
the loan and, in the case of a secured loan, the guaranty of the security for
the loan.  The Company has instituted measures at both the Bank and CLC which
are designed to reduce the risk of, and monitor exposure to, credit losses.

     The Bank's loan portfolio is periodically reviewed by the Bank's management
to identify deficiencies and to take corrective actions as necessary.  As
discussed below, each of the Bank's loans is assigned a rating in accordance
with the Bank's internal loan rating system and is reviewed monthly to update
its rating in accordance with the performance of the loan.  All past due loans
are reviewed weekly by the Bank's senior lending officers and monthly by the
Loan Committee of the Board of Directors, and all loans classified as
substandard or doubtful, as well as any "special mention" loans, are reviewed at
least monthly by the Loan Committee.  In addition, all loans to a particular
borrower are reviewed, regardless of classification, each time such borrower
requests a renewal or extension of any loan or requests an additional loan.  All
lines of credit are reviewed annually prior to renewal. Such reviews include,
but are not limited to, the ability of the borrower to repay the loan, a re-
assessment of the borrower's financial condition, the value of any collateral
and the estimated potential loss to the Bank, if any.

     The Bank's internal problem loan rating system establishes three
classifications for problem assets:  substandard, doubtful and loss.
Additionally, in connection with regulatory examinations of the Bank, federal
and state examiners have authority to identify problem assets and, if
appropriate, require the Bank to classify them.  Substandard assets have one or
more defined weaknesses and are characterized by the distinct possibility that
the Bank will sustain some loss if the deficiencies are not corrected.  Doubtful
assets have the weaknesses of substandard assets with the additional
characteristic that the weaknesses make collection or liquidation in full, on
the basis of currently existing facts, conditions and values, highly
questionable and improbable.  An asset classified as loss is considered
uncollectible and of such little value that continuance as an asset of the Bank
is not warranted.  Consequently, such assets are charged-off in the month they
are classified as loss.  Federal regulations also designate a "special mention"
category, described as assets which do not currently expose the Bank to a
sufficient degree of risk to warrant classification but do possess credit
deficiencies or potential weaknesses deserving management's close attention.

     Assets classified as substandard or doubtful require the Bank to establish
general allowances for loan losses.  If an asset or portion thereof is
classified as loss, the Bank must either establish specific allowances for loan
losses in the amount of 100% of the portion of the asset classified as loss

                                      -15-
<PAGE>

or charge off such amount. General loss allowances established to cover possible
losses related to assets classified as substandard or doubtful may be included,
up to certain limits, in determining the Bank's regulatory capital, while
specific valuation allowances for loan losses do not qualify as regulatory
capital.

     The Bank's collection procedures provide that when a loan becomes 10 days
delinquent, the borrower is contacted by mail and payment is requested.  If the
delinquency continues, subsequent efforts are made to contact and request
payment from the delinquent borrower.  Most loan delinquencies are cured within
60 days and no legal action is required.  In certain circumstances, the Bank,
for a fee, may modify the loan, grant a limited moratorium on loan payments or
revise the payment schedule to enable the borrower to restructure his or her
financial affairs.  The Bank has no restructured loans as of December 31, 1997.
Generally, the Bank stops accruing interest on delinquent loans when payment is
in arrears for 90 days (unless the obligation is both well secured and in the
process of collection) or when collection otherwise becomes doubtful.  If the
delinquency exceeds 120 days and is not cured through the Bank's normal
collection procedures or through a restructuring, the Bank will institute
measures to enforce its remedies resulting from the default, including
commencing a foreclosure, repossession or collection action.  In certain cases,
the Bank will consider accepting a voluntary conveyance of collateral in lieu of
foreclosure or repossession.  Real property acquired by the Bank as a result of
foreclosure or by deed in lieu of foreclosure is classified as "real estate
owned" until it is sold and is carried at the lower of cost (defined as fair
value at foreclosure) or fair value less estimated costs to dispose.  Accounting
standards define fair value as the amount that is expected to be received in a
current sale between a willing buyer and seller other than in a forced or
liquidation sale.  Fair values at foreclosure are based on appraisals.  Losses
arising from the acquisition of foreclosed properties are charged against the
allowance for loan losses. Subsequent writedowns are provided by a charge to
income through  losses on other real estate in the period in which the need
arises.

     The Bank attempts to sell real estate owned promptly after foreclosure, and
it sold approximately $37,045 of its real estate owned due to loan foreclosures
during the year ended December 31, 1997.  The book value of real estate owned
that was sold by the Bank during the year ended December 31, 1997 totaled
approximately $37,365.  As of December 31, 1997, there was no real estate owned
as a result of foreclosure.

     CLC's loan portfolio is periodically reviewed by CLC's management to
identify deficiencies and to take corrective actions as necessary. All past due
loans are reviewed daily by each CLC Office Manager and monthly by CLC's
President. CLC's Board of Directors reviews the total loans considered over 90
days delinquent in their bi-monthly meetings. The Board compares delinquency
rates on an office-by-office basis. CLC's collection procedures provide that
when a loan becomes 5 days delinquent, the borrower is contacted by mail and
payment is requested. If the delinquency continues, subsequent efforts are made
to contact and request payment from the delinquent borrower. Most loan
delinquencies are cured within 90 days and no legal action is required.
Generally, when an account reaches 90 to 120 days with no payment collected in
that time frame, notice will be mailed to the customer stating that CLC is
taking legal action against them unless the account is brought to

                                      -16-
<PAGE>

a current status within 10 days. If the customer does not respond within that
time frame, CLC typically will file suit against the parties involved in the
local Magistrate Court. Generally, CLC's policy is to charge off any loan on
which CLC has not received a payment in 6 months. Management may determine that
a loan is in the process of collection and, therefore, the past due loan does
not have to be charged off. CLC's loans which are past due 90 days or more total
approximately $97,196 as of December 31, 1997, as compared to $92,202 as of
December 31, 1996.

     The following table sets forth information regarding the Company's
delinquent and nonperforming assets as of the dates indicated.

<TABLE>
<CAPTION>
                                                 At December 31,
                                               --------------------
                                                 1997       1996
                                               ---------  ---------
<S>                                            <C>        <C>
Accruing loans which are contractually
  past due 90 days or more:

    Commercial, financial, and agricultural..       -0-        -0-
    Real estate - construction...............       -0-        -0-
    Real estate - mortgage...................  $ 80,381   $ 37,365
    Consumer.................................    97,406     99,283
                                               --------   --------


      Total..................................  $177,787   $136,648
                                               ========   ========

Ratio of delinquent but accruing loans to:

      Total loans............................       .31%       .28%
      Total assets...........................       .19%       .16%


Nonaccruing loans:

  Commercial, financial, and agricultural....  $ 37,650   $ 23,850
  Real estate - construction.................       -0-        -0-
  Real estate - mortgage.....................   154,313        432
  Consumer loans.............................   200,372      5,955
                                               --------   --------

      Total..................................  $392,335   $ 30,237
                                               ========   ========

Real estate acquired through foreclosure.....  $    -0-   $    -0-

Property acquired through repossession.......  $  1,500   $  3,000

Ratio of nonperforming assets to:

Total loans and real estate acquired
through foreclosure and repossessions........       .69%       .07%

Total assets.................................       .43%       .04%

</TABLE>


                                     -17-
<PAGE>

     The Bank recorded interest income on the nonaccruing loans listed above for
the fiscal year ended December 31, 1997 of approximately $10,818.  The gross
interest income that would have been recorded during the fiscal year ended
December 31, 1997 if the nonaccruing loans listed above had been current in
accordance with their original terms would have been approximately $23,677.

Allowance for Loan Losses

     The allowance or reserve for possible loan losses is a means of absorbing
future losses which could be incurred from the current loan portfolio.  Both the
Bank and CLC maintain an allowance for possible loan losses, and management
adjusts the general allowances monthly by charges to income in response to
changes to outstanding loan balances.

     The Bank maintains a general allowance equal to approximately 1.50% of the
total principal amount of loans outstanding (less the total principal amount of
loans outstanding that are secured by certificates of deposit), and management
adjusts the general allowance monthly by charges or credits to income in
response to changes in the outstanding loan balance.  Management also may
establish specific loan loss allowances for specific loans after considering
such factors as past delinquencies on the loan, the value of the underlying
collateral and the size of the loan.  The Bank began a special allowance in 1996
equal to 4% of the outstanding balances in its credit card portfolio, in
acknowledgment of the risk related with this type of credit product.  As of
December 31, 1997 management was not aware of any specific loan problems which
necessitated a specific loan loss allowance.  A loan or portion thereof is
charged off against the general allowance when management has determined that
losses on such loans are probable.  Recoveries on any loans charged off in prior
fiscal periods are credited to the allowance.  It is the opinion of the Bank's
management that the balance in the general allowance for loan losses as of
December 31, 1997 is adequate to absorb possible losses from loans currently in
the portfolio.

     CLC maintains a general allowance for possible loan losses, in addition to
the fact that a majority of the loans in CLC's portfolio are insured in case of
default by the borrower.  CLC may be reimbursed for any covered loan balance
which goes into default.  CLC's Board of Directors  reviews the general
allowance for loan loss on a quarterly basis to review its adequacy in covering
any future losses that may be sustained by CLC.


                                     -18-
<PAGE>

     The following table summarizes the Company's loan loss experience for the
periods indicated.
<TABLE>
<CAPTION>


                                                Years Ended December 31,
                                               -------------------------

                                                   1997          1996
                                                   ----          ----
<S>                                            <C>           <C>
Average loans................................  $52,395,119   $46,043,727

Allowance for possible loan losses,
 beginning of the period.....................      713,518       583,306

Charge-offs for the period:
    Commercial, financial, and agricultural..        7,459   $     1,092
    Real estate - construction...............          -0-           -0-
    Real estate - mortgage...................          752           -0-
    Consumer.................................      137,614        89,171
                                               -----------   -----------

     Total charge-offs.......................  $   145,825   $    90,263
                                               -----------   -----------

Recoveries for the period:
    Commercial, financial, and agricultural..  $     8,734   $     1,318
    Real estate - construction...............          -0-           -0-
    Real estate - mortgage...................          787         1,613
    Consumer.................................       47,748        19,703
                                               -----------   -----------

     Total recoveries........................  $    57,269   $    22,634
                                               -----------   -----------

    Net charge-offs for the period...........  $    88,556   $    67,629
                                               ===========   ===========

Provision for loan losses....................  $   204,270   $   197,841

Allowance for possible loan losses,
  end of the period..........................  $   829,232   $   713,518

Ratio of allowance for loan losses to
  total average loans outstanding............         1.58%         1.55%

Ratio of net charge-offs during
  the period to average loans
  outstanding during the period..............          .17%          .15%

</TABLE>

     In addition to the Bank's loan rating system for problem assets described
above (see Problem Loans, above), the Bank has established a loan rating system
for all categories of loans which assists management and the Board of Directors
in determining the adequacy of the Bank's allowance for loan losses.  Each loan
in the Bank's portfolio is assigned a rating which is reviewed by management
periodically to ensure its continued suitability.  An exception is made in the
case of (i) monthly installment loans which are grouped together by delinquency
status such as over 10, 30, 60, or 90


                                     -19-
<PAGE>

days past due and (ii) problem assets which are rated as substandard, doubtful,
or loss as discussed above. All other loans are assigned a rating of excellent,
good, or moderate. The total amount of loans in each of these loan rating
categories is weighted by a factor that management believes reasonably reflects
losses that can be anticipated with respect to loans in each of these
categories. Based on these weightings, the Bank's management establishes an
allowance for loan losses that is reviewed by its Board of Directors each month.

     The following table sets forth the Company's allocation of the allowance
for loan losses as of December 31, 1997 and 1996.

<TABLE>
<CAPTION>

                                                  At December 31, 1997                  At December 31, 1996
                                            ------------------------------       ----------------------------------
                                                            Percent of loans                       Percent of loans
                                                            in each category                       in each category
Balance at end of period applicable to         Amount        to total loans         Amount          to total loans
--------------------------------------         ------        --------------         ------          ---------------

<S>                                           <C>                <C>                    <C>              <C>
Commercial, financial, and agricultural.....  $ 76,141           13.58%            $ 72,811              11.82%
Real estate - construction..................    40,045           14.53%              66,193              14.72%
Real estate - mortgage......................   221,962           53.91%             237,943              54.50%
Consumer....................................   124,424           17.98%             105,956              18.96%
Unallocated.................................   366,660             N/A              230,615                N/A
                                              --------          ------             --------             ------

     Total..................................  $829,232          100.00%            $713,518             100.00%
                                              ========          ======             ========             ======
</TABLE>

INVESTMENT ACTIVITIES
---------------------

     Interest earned on investments in securities, on interest-bearing deposits
in other banks and on federal funds sold provides the second largest source of
revenues for the Company after interest on loans, constituting $1,555,174 or
17.60% of total interest and other income for the year ended December 31, 1997.
The Company's investment portfolio totaled approximately $23,322,111 or 25.38%
of total assets at December 31, 1997.  The entire investment portfolio is held
by the Bank. The portfolio is designed to enhance liquidity while providing
acceptable rates of return.  Bank policy limits securities investments to
securities having a rating of no less than "BAA" by Moody's Investors Service,
Inc. or "BBB" by Standard and Poor's Corporation.

     The following table sets forth the carrying value of the Bank's investments
at the dates indicated.  All securities held are available for sale and are
carried at fair market value.

<TABLE>
<CAPTION>

                                                        At December 31,
                                                    ------------------------
                                                       1997         1996
                                                    -----------  -----------
<S>                                                 <C>          <C>

      U.S. Government and agency
        obligations...............................  $17,826,801  $19,701,854
      Other bonds, notes, debentures
        and securities............................      301,100      255,000
      States & political subdivisions tax-exempt..    5,194,210    2,716,836
                                                    -----------  -----------

         Total....................................  $23,322,111  $22,673,690
                                                    ===========  ===========
</TABLE>


                                     -20-
<PAGE>

     The following table sets forth the amortized cost value of the Bank's
investments at December 31, 1997, the weighted average yields on the Bank's
investments at December 31, 1997 and the periods to maturity of the Bank's
investments from December 31, 1997.

<TABLE>
<CAPTION>


                                                 Periods to Maturity from December 31, 1997
                                 -----------------------------------------------------------------------
                                     1 year or less              1 - 5 years             5 - 10 years        Over 10 years
                                 ----------------------    -----------------------   -------------------   ------------------
                                             Weighted                   Weighted              Weighted             Weighted
                                             Average                    Average               Average              Average
                                  Amount      Yield/(1)/   Amount        Yield/(1)/  Amount    Yield/(1)/  Amount   Yield/(1)/
                                  ------     ----------    ------       ----------   ------   ----------   ------  ---------
<S>                            <C>               <C>      <C>              <C>      <C>         <C>    <C>             <C>
U. S. Government
  agencies ..................   $2,886,171       6.06%    $ 5,141,983      6.05%       $-0-      -0-   $  911,989       3.98%
U. S. Treasuries ............          -0-        -0-       6,815,948      6.10%        -0-      -0-          -0-        -0-
U. S. Government agencies -
mortgage-backed .............          -0-        -0-         623,314      4.58%    241,195     5.43%   1,206,201       5.96%
Tax-exempt
  municipal bonds ...........      250,000       6.45%      1,577,812      7.29%    481,130     7.22%   2,885,268       8.35%
Other bonds, notes, de-
  bentures, and securities...      301,100       7.92%            -0-       -0-         -0-       -0-          -0-        -0-
                                   -------       ----     -----------    ------    --------   -------   ----------     ------

   Total.....................   $3,437,271       6.26%    $14,159,057      6.14%   $722,325     6.62%  $5,003,458       7.06%
                                ==========                ===========              ========            ==========
</TABLE>
--------------------
  (1)The weighted average yields on tax-exempt securities have been computed on
     a tax-equivalent basis.


     The following table sets forth, as of December 31, 1997,  the aggregate
estimated fair market value, which is the carrying value, of the securities of
issuers in which the aggregate estimated fair market value of the Company's
investment exceeds 10% of the Company's stockholders' equity.


                                               Estimated Aggregate
                                                Fair Market Value
                                               At December 31, 1997
                                               --------------------

Federal Home Loan Bank.......................        $3,000,058
Federal National Mortgage Association........         4,724,458
Federal Home Loan Mortgage Corporation.......         1,662,657
Paulding County Municipal Bonds (1)..........         2,403,600

----------------
(1) Generally, municipal bonds held by the Company are insured by a private,
third-party insurer for the full amount of principal and interest due.


SOURCES OF FUNDS
----------------

GENERAL

     Time, money market, savings and demand deposits are the major source of the
Company's funds for lending and other investment purposes. All deposits are held
by the Bank. In addition, the


                                     -21-
<PAGE>

Company obtains funds from loan principal repayments and proceeds from sales of
loan participations and investment securities. Loan repayments are a relatively
stable source of funds, while deposit inflows and outflows and sales of loan
participations and investment securities are significantly influenced by
prevailing interest rates, economic conditions and the Company's asset and
liability management strategies. Borrowings may be used on a short-term basis to
compensate for reductions in the availability of other sources of funds or on a
longer term basis to support expanded lending activities and for other general
business purposes. Additionally, in 1997, the Company established a $2,500,000
revolving credit facility with The Bankers Bank, Atlanta, Georgia. The Company
received $800,000 in proceeds from this note payable during 1997. As of March 2,
1998, the Company had $900,000 in borrowings outstanding under this facility.

DEPOSITS

     The Bank offers several types of deposit accounts, with the principal
differences relating to the minimum balances required, the time period the funds
must remain on deposit and the interest rate. Deposits are obtained primarily
from the Bank's Paulding County market area. The Bank does not advertise for
deposits outside of this area, and as a result an insignificant amount of the
Bank's deposits are from out-of-state sources. The Bank does not solicit funds
from brokers, nor does it rely upon any single person or group of related
persons for a material portion of its deposits.

     A principal source of deposits for the Bank consists of short-term money
market and other accounts which are highly responsive to changes in market
interest rates. Accordingly, the Bank, like all financial institutions, is
subject to short-term fluctuations in deposits in response to customer actions
due to changing short-term market interest rates. The ability of the Bank to
attract and maintain deposits and the Bank's cost of funds have been and will
continue to be significantly affected by money market conditions.

     The following table sets forth the composition of deposits for the Company,
excluding accrued interest payable, by type of account and weighted average
interest rate for the years ended December 31, 1997 and December 31, 1996.

<TABLE>
<CAPTION>

                                           1997                                  1996
                          ---------------------------------         ----------------------------------
                          Interest                                  Interest
Type of Account             Rate       Amount      Percent            Rate       Amount       Percent
---------------             -----    -----------   --------           -----    -----------    --------
<S>                         <C>      <C>             <C>              <C>      <C>              <C>
Demand deposits...........   -0-     $12,105,179     14.77%            -0-     $ 9,648,648      12.55%
NOW accounts..............  1.72%      9,710,739     11.85%           1.89%      8,757,099      11.39%
Money market deposits.....  2.89%      8,933,508     10.90%           2.88%      8,454,539      10.99%
Savings deposits..........  3.06%     14,808,283     18.06%           3.17%     15,546,932      20.22%
Time deposits.............  5.94%     36,423,394     44.42%           5.91%     34,490,543      44.85%
                            ----     -----------    ------            ----     -----------     ------

          Total deposits..  4.33%    $81,981,103    100.00%           4.35%    $76,897,761     100.00%
                            ====     ===========    ======            ====     ===========     ======
</TABLE>


                                     -22-
<PAGE>

     The following table sets forth the amount of time deposits maturing in the
periods indicated at December 31, 1997.


                                Amount Maturing
               ---------------------------------------------
                 Within       Within      Within      After
                 1 Year      2 Years     3 Years     3 Years       Total
                 ------      -------     -------     -------       -----

4% - 6%....  $18,609,085  $3,333,216  $  288,648  $      -0-  $22,230,949
6% - 8%....    5,969,765   2,466,180   2,713,111   3,043,389   14,192,445



     The following table sets forth the maturity distribution of time deposits
of $100,000 or more at December 31, 1997.

                                        Time Deposits
                                        $100,000 or more
                                        ----------------

3 months or less......................       $ 4,901,321
Over 3 months through 6 months........         1,327,596
Over 6 months through 12 months.......         2,992,309
Over 12 months........................         5,612,528
                                             -----------
   Total outstanding..................       $14,834,114
                                             ===========

BORROWINGS

     The Bank has not borrowed any funds to date, although the Bank has
available two term federal funds lines of credit with correspondent banks, in
the amounts of $2,000,000 and $1,000,000, respectively. In addition, the Bank
has the right to borrow from the Federal Reserve Bank of Atlanta if necessary to
supplement its supply of funds available for lending and to meet deposit
withdrawal requirements. The Bank is a member of the Federal Home Loan Bank of
Atlanta and borrowings are also available through that relationship. The amount
of credit available from the Federal Home Loan Bank of Atlanta fluctuates based
on criteria set by that institution. Additionally, the Company's $2,500,000 line
of credit with The Bankers Bank is intended to enhance the Company's liquidity.
At December 31, 1997, a total of $800,000 had been drawn and was outstanding
under the Company's line of credit with The Bankers Bank.

RETAIL SERVICES

     The Bank provides its customers with a variety of retail banking services.
The Bank is a member of the HONOR(R) and CIRRUS(R) systems of automated tellers
and point of sale terminals, which provide Bank customers with access to
HONOR(R) and CIRRUS(R) services throughout the world. The Bank maintains three
full-service ATMs and 21 Mini-ATM locations throughout its market area. These
Mini-ATMs issue scrip, instead of cash, which may be redeemed by the customer
only at the establishment where the Mini-ATM is located. The Bank also provides
(in addition to the


                                     -23-
<PAGE>

lending and deposit services described above) a variety of checking accounts,
savings programs, night depository services, safe deposit facilities and credit
card plans (MasterCard and VISA).

Securities Brokerage And Insurance Services
-------------------------------------------

     The Bank makes securities brokerage execution services available to its
customers through PrimeVest Financial Services, Inc. at commissions which are up
to 50% less than standard brokerage commissions. Beginning in January, 1998, the
Bank began affording its customers access to a broad range of insurance and
investment-related services, including insurance needs analysis, retirement and
estate planning alternatives, money management strategies and college tuition
and other savings options. These services are being provided through Robert B.
Maxwell, III, an independent, state-licensed insurance agent. Mr. Maxwell is an
independent contractor affiliated with Massachusetts Mutual Life Insurance
Company.

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

     Based on total assets of approximately $89,607,990 at December 31, 1997,
the Bank is presently one of the smaller financial institutions with offices in
Paulding County. The Bank faces strong competition for deposits and loans from
five other financial institutions, two of which are community banks that
expanded their services from adjacent Cobb County into Paulding County in 1996.
Two of the larger financial institutions have greater resources and lending
limits than the Bank, and have several branch offices. A federal credit union
owned by the employees of a local public utility company also has opened a
branch in Paulding County. Since credit unions are not subject to income taxes
in the way that commercial banks are taxed, credit unions have an advantage in
offering competitive rates to potential customers. The Bank also competes for
deposits and loans with commercial banks and thrift institutions in metropolitan
Atlanta, some of which are affiliated with large regional financial
institutions. The Bank also faces competition in certain areas of its business
from mortgage banking companies, consumer finance companies, insurance
companies, money market mutual funds and investment banking firms, some of which
are not subject to the same degree of regulation as the Bank.

     The Bank competes for deposits principally by offering depositors a variety
of deposit programs with competitive interest rates, quality service and
convenient locations and hours. The Bank competes for loans by offering
competitive interest rates and loan fees, timely processing and quality service.
The Bank believes that its relatively small size permits it to offer more
personalized services than many of its competitors.

     The competitive pressures among commercial banks, thrift institutions and
other financial services entities have increased significantly in recent years
and are expected to continue to do so. The establishment of money market
accounts and the elimination of rate controls for interest rates paid on
deposits in the early 1980s, for example, have increased the competition for
deposits and tend to increase the Bank's cost of funds, especially during
periods of high interest rates.


                                     -24-
<PAGE>

     Within Georgia, competition among financial institutions is increasing due
to a number of factors including, but not limited to, the acquisition of
Georgia-based financial institutions by out-of-state financial institutions.
With regard to interstate transactions, recently enacted federal legislation
permits interstate bank acquisitions, without regard to conflicting state laws
which purport to restrict or prohibit such acquisitions. See "Supervision and
Regulation--Other Legislation" below. Additionally, the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 (FIRREA) amended the federal Bank
Holding Company Act of 1956 (the BHCA) to permit the acquisition of healthy
savings institutions by bank holding companies. Prior to FIRREA, bank holding
companies could acquire only troubled thrifts. As a result of FIRREA, Georgia-
based thrift institutions may now be acquired by bank holding companies
headquartered in Georgia or out-of-state.

     In addition to facing increased competition from out-of-state financial
institutions, Georgia-based financial institutions are now likely to face
increased competition from other Georgia-based banks. The Georgia legislature
enacted legislation which, effective July 1, 1996, allowed Georgia-based banks
to branch into up to three counties in addition to the county in which their
main office is located. This same legislation will eliminate all branching
restrictions, thereby permitting unrestricted state-wide branching, effective
July 1, 1998.

     Consolidations of Georgia banking or thrift institutions with out-of-state
institutions could increase the presence in Georgia of out-of-state financial
institutions with substantially greater assets and resources than the Bank.
Additionally, the erosion of state law restrictions on intrastate branching may
result in the opening of branch banks in Paulding County by banks that
previously had been prohibited from doing so. Similarly, federal savings
institutions, with which the Bank competes for loans and deposits, are permitted
to branch statewide. One such institution has recently opened a Paulding County
branch.

EMPLOYEES
---------

     As of December 31, 1997, the Bank had 52 full-time and 20 part-time
employees, Metroplex had two full-time employees and one part-time employee, CLC
had nine full-time and one part-time employees, and CashTrans had four full-time
employees and three part-time employees. No employees are covered by collective
bargaining agreements, and the Company considers its relationship with its
employees to be excellent.

SUPERVISION AND REGULATION
--------------------------

GENERAL

     As a bank holding company, the Company is subject to regulation by the
Board of Governors of the Federal Reserve (the Federal Reserve) pursuant to the
BHCA and by 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 federal securities laws.


                                     -25-
<PAGE>

     The Bank is a state bank and is subject to the supervision of, and is
regularly examined by, the Georgia Department. 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.

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

     Additionally, on December 19, 1991, the FDIC Improvement Act of 1991
(FDICIA) became law which resulted in extensive changes to the federal banking
laws. The primary purpose of the law was to authorize additional borrowings by
the FDIC in order to provide funds for the resolution of failing financial
institutions. However, the law also instituted certain changes to the
supervisory process and contained various provisions affecting the operations of
banks and bank holding companies like the Bank and the Company. Certain of these
changes are discussed below under the caption "Enactment of FDICIA."

     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 laws or
regulations may have a material effect on the business and prospects of the
Company and the Bank.

REGULATION OF THE COMPANY

     General.  As the bank holding company for the Bank, the Company is subject
to the supervision and regulation of the Federal Reserve and the Georgia
Department. 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 and the Georgia
Department also may make examinations of the Company and each of its
subsidiaries.

     Regulatory Capital Requirements. The Federal Reserve has adopted risk-based
capital adequacy guidelines for use in its examination and regulation of bank
holding companies. 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;


                                     -26-
<PAGE>

and (iii) the total capital to risk-weighted assets ratio must be at least 8%.
At December 31, 1996, the Company was in compliance with these risk-based
capital guidelines. See "Capital Resources and Liquidity" in the Management's
Discussion and Analysis section of the Company's 1996 Annual Report to
Shareholders.

     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 a bank subsidiary in the event the 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.

     Change of Control and Permissible Activities. 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.

     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. Additionally, the Federal Reserve, by
regulation, has deemed certain nonbanking activities to be permissible
activities and has exempted such activities from the prior approval
requirements, although notice to and review by the Federal Reserve of such
activities would be necessary before the Company could engage de novo 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.

     Additionally, the Federal Change in Bank Control Act (CIBCA) requires 60
days' prior written notice to the appropriate federal bank regulatory agency
before any person may acquire "control" of a bank or bank holding company. The
appropriate federal bank regulatory agency with respect to acquisitions of
control of a state non-member bank, such as the Bank, is the FDIC, and the
appropriate federal bank regulatory agency with respect to acquisitions of
control of a bank holding company, such as the Company, is the Federal Reserve.

     Under existing Federal Reserve regulations, "control" is presumed to exist
where the acquiring party (which includes a group "acting in concert") (a) owns,
controls, or holds with power to vote 25% or more of any class of voting
securities of the institution, or (b) owns, controls, or holds with power to
vote 10% or more of any class of voting securities of the institution, if (i)
the institution has registered securities under Section 12 of the Securities
Exchange Act of 1934, or (ii) no other person will own a greater percentage of
that class of voting securities immediately following the transaction.


                                     -27-
<PAGE>

     The activities of the Company also are restricted by the provisions of the
Glass-Steagall Act of 1933 (the Act). The Act restricts the ability of the
Company to own 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.

     Supervisory and Enforcement Powers. The Federal Reserve has been granted
enforcement powers over bank holding companies and non-banking 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.

     Restrictions on Transactions with Affiliates. The Bank and the Company are
"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.

     Miscellaneous. Under Section 106(b) of the Bank Holding Company Act
Amendments of 1970 (12 U.S.C. (S) 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 (other than a loan,
discount, deposit, or trust service) 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) provide any
credit, property or service to the Company, the Bank (other than those related
to and usually provided in connection with a loan, discount, deposit or trust
service) or any subsidiary of the Company.

     Most bank holding companies are required to give the Federal Reserve prior
written notice of any purchase or redemption of their outstanding equity
securities if the gross consideration for the


                                     -28-
<PAGE>

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 bank holding 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. The prior notice requirement does not apply
to certain "well-capitalized" bank holding companies that meet specified
criteria.

     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.

     Georgia Law. The Company also is a bank holding company within the meaning
of the GBHCA, which provides without limitation that, without the prior approval
of the Georgia Department, it is unlawful (i) for any action to be taken that
causes a company to become a bank holding company, (ii) for any bank holding
company to acquire direct or indirect ownership or control of more than 5% of
the voting shares of any bank, (iii) for any bank holding company or subsidiary
thereof, other than a bank, to acquire all or substantially all of the assets of
a bank, (iv) for any action to be taken that causes a bank to become a
subsidiary of a bank holding company or (v) 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 at least two years.

     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.


                                     -29-
<PAGE>

Regulation of the Bank

     General.  The Bank is a commercial bank chartered under the laws of the
State of Georgia and its deposit accounts are insured up to applicable limits by
the Bank Insurance Fund (BIF) of the FDIC.  The Bank is subject to the
regulation, examination and supervision of the Georgia Department and the FDIC.
Both the Georgia Department and the FDIC issue regulations and require the
filing of reports describing the activities and financial condition of the banks
under their jurisdiction.  Each agency conducts periodic examinations to test
compliance with various regulatory requirements and generally supervises the
operation of such banks.  This supervision and regulation is intended primarily
for the protection of depositors.  As an FDIC-insured, state-chartered bank, the
Bank may not enter into certain transactions unless applicable regulatory tests
are met or it obtains the prior approval of the regulatory agencies.  For
instance, the approval of the Georgia Department and the FDIC are required prior
to any merger or consolidation or the establishment of an office at which
banking business is conducted.  The Bank also is regulated in certain respects
by the Federal Reserve.

     Georgia Law.  The Bank derives its lending and investment authority
primarily from the applicable provisions of the Financial Institutions Code of
Georgia and the rules and regulations promulgated thereunder by the Georgia
Department.  Under these laws and regulations, commercial banks, including the
Bank, may invest in real estate mortgages, commercial and consumer loans,
certain types of securities, including certain corporate debt and equity
securities, asset backed securities, and obligations of federal, state and local
governments and agencies, and certain other assets.  A Georgia chartered bank's
lending powers generally are subject to certain restrictions, including limits
on amounts loaned to one borrower.  Additionally, the exercise by an FDIC
insured commercial bank of the lending and investment powers of a commercial
bank under the Financial Institutions Code may be limited by FDIC regulations.

     Under the Financial Institutions Code, the maximum interest rate a bank may
charge on a loan depends on the amount of the loan.  If the principal amount of
the loan is $3,000 or less, banks may charge a maximum of 16% per annum simple
interest, unless the loan is made pursuant to another law.  Borrowers and banks
may agree in writing on any rate of interest, expressed in simple interest
terms, on loans of more than $3,000 but less than $250,000.    In addition,
banks and borrowers may agree in writing on any rate of interest, expressed in
simple interest terms or otherwise, on loans of $250,000 or more, provided that
all charges to be paid by the borrower are disclosed in a written agreement.
There is, however, a criminal penalty for charging interest rates greater than
5% per month.

     Georgia commercial banks also have the power to invest in subsidiaries.  A
commercial bank may use this power to invest in corporations that engage in
various service activities that banks are authorized to carry on, plus
additional activities authorized by the Georgia Department.  Additional
activities may from time to time be authorized by the Georgia Department.
Investment by a bank in the stock of such corporations engaged in activities
described above is limited to the lesser of 10% of the bank's total assets or
100% of the bank's statutory capital base, and such investments must be approved
by the Georgia Department.

                                      -30-
<PAGE>

     Currently, a Georgia chartered bank may establish additional offices within
the county in which its main office is located and in up to three additional
counties.  However, effective July 1, 1998, all branching restrictions will be
eliminated, thereby permitting unrestricted state-wide banking. See "Other
Legislation" below.

     Georgia commercial banks may, with the approval of the Georgia Department,
merge or consolidate with another bank, trust company or other corporation as
long as the resulting institution is a bank or trust company engaged only in the
business of a bank or trust company.  Additionally, a bank may sell, lease,
exchange or otherwise dispose of all or substantially all of its property and
assets with the approval of the Georgia Department.

     The Financial Institutions Code prohibits the payment of dividends by a
state chartered bank if such bank is insolvent or would thereby be rendered
insolvent, if such dividend is contrary to restrictions contained in the bank's
articles of incorporation, if the dividend would be paid from other than
retained earnings or if the bank does not have the required amount of paid-in
capital and appropriated retained earnings.  In addition, pursuant to
regulations adopted by the Georgia Department, a Georgia-chartered bank must
have the approval of the Georgia Department to pay cash dividends, unless at the
time of such payment (i) the total classified assets at the most recent
examination of the bank do not exceed 80% of the bank's equity capital and
reserves as reflected by such examination; (ii) the aggregate amount of
dividends declared or anticipated to be declared in the calendar year does not
exceed 50% of the net profits, after taxes but before dividends, of the bank for
the previous calendar year; and (iii) the ratio of the bank's equity capital, as
defined, to adjusted total assets, as defined, is not less than 6%.  The Georgia
Department also requires the Bank to maintain a ratio of capital, as defined in
the Georgia Department's statement of policy on capital adequacy, to adjusted
total assets of not less than 8% during the first three years of operations.

     Under the Financial Institutions Code, the Georgia Department may issue
orders to a Georgia chartered bank to submit to an investigation by the Georgia
Department, to discontinue unauthorized or unsafe practices or to keep
prescribed books and accounts.  If the Georgia Department finds that any
director or officer of any banking organization has violated any law or duly
enacted regulation, or has continued unauthorized or unsafe practices in
conducting the business of the banking organization after being notified by the
Georgia Department to discontinue such practices, or has been indicted for any
crime involving moral turpitude or breach of trust, or has filed for bankruptcy
protection from creditors, the Georgia Department may remove such director or
officer from office. No director or officer of the Bank has been found by the
Georgia Department to have engaged in, or has been investigated by the Georgia
Department with respect to, any of such activities.

Insurance of Accounts

     Deposits of the Bank are insured by the FDIC to a maximum of $100,000 for
each insured depositor through the Bank Insurance Fund (BIF), one of the two
deposit insurance funds established by FIRREA.  As an insurer, the FDIC issues
regulations, conducts examinations and generally supervises the operations of
its insured institutions (institutions insured by the FDIC hereinafter are
referred to as "insured institutions").  Any insured institution which does not
operate in accordance

                                      -31-
<PAGE>

with or conform to FDIC regulations, policies and directives may be sanctioned
for non-compliance. For example, proceedings may be instituted against an
insured institution if the institution or any director, officer or employee
thereof engages in unsafe and unsound practices, is operating in an unsafe or
unsound condition, or has violated any applicable law, regulation, rule, order
or condition imposed by the FDIC. If insurance of accounts is terminated by the
FDIC, the deposits in the institution will continue to be insured by the FDIC
for a period of two years following the date of termination. The FDIC requires
an annual audit by independent accountants and also periodically makes its own
examinations of insured institutions. The FDIC may revalue assets of an
institution, based upon appraisals, and require establishment of specific
reserves in amounts equal to the difference between such reevaluation and the
book value of the assets.

     On September 15, 1992, the FDIC approved final regulations adopting a risk-
related deposit insurance system.  The risk-related regulations, which became
effective January 1, 1993, resulted in a significant spread between the highest
and lowest deposit insurance premiums.  Under the risk-related insurance
regulations, each insured depository institution is assigned to one of three
risk classifications: "well capitalized," "adequately capitalized," or "under
capitalized."  Within each risk classification, there are three subgroups.  Each
insured depository institution is assigned to one of these subgroups within its
risk classification based upon supervisory evaluations submitted to the FDIC by
the institution's primary federal regulator.  Depending upon a BIF member's risk
classification and subgroup, applicable regulations provide that its deposit
insurance premium may be as low as .04% of insured deposits or as high as .31%
of insured deposits.  Additionally, because the BIF has exceeded its designated
reserve ratio, the FDIC has now reduced to zero the assessment rate that is
applicable to the most highly rated BIF members.  The Bank has been notified
that, based on its risk classification and supervisory subgroup, its BIF
assessment rate is zero percent of insured deposits for the period from
January 1, to June 30, 1998. This is the most favorable assessment rate
applicable to any insured institution. However, the Deposit Insurance Funds Act
of 1996 (DIFA) requires that a Financing Corporation (FICO) assessment be paid
by the Bank in 1998. The annual FICO assessment rate for banks is presently
 .01256% of deposits. The Bank paid approximately $8,995 in assessments, which
was the minimum set by the FDIC for that period, during the year ended
December 31, 1997.

     Subsequent to the enactment of FIRREA, the FDIC issued risk-based bank
capital guidelines which went into effect in stages through 1992.  In accordance
with the FDIC's risk-based standards, an institution'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 these assets.  In
addition, the guidelines divide capital instruments into Tier 1 (core) capital
and Tier 2 (supplementary) capital. The risk-based capital adequacy guidelines
require that (i) Tier 1 capital equal or exceed 4% of risk-weighted assets; (ii)
Tier 2 capital may not exceed 100% of Tier 1 capital, although certain Tier 2
capital elements are subject to additional limitations; (iii) assets and off-
balance sheet items be weighted according to risk; and (iv) the total capital to
risk-weighted assets ratio must be at least 8.0%.  The FDIC's current leverage
capital requirement requires banks receiving the highest regulatory rating based
upon the FDIC's routine examination process, to maintain Tier 1 capital equal to
3.0% of the bank's total assets.  Banks receiving lower regulatory ratings are
required to maintain Tier 1 capital in an amount that is at least 100 to 200
basis points higher than 3.0% of total assets.

                                      -32-
<PAGE>

     At December 31, 1997, the Bank had Tier 1 capital of $6,273,194, or 7.03%
of total average assets.

     Certain provisions of the Federal Reserve Act, made applicable to the Bank
by Section 18(j) of the Federal Deposit Insurance Act (12 U.S.C.(S)1828(j)) and
administered with respect to the Bank by the FDIC, 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) between the Bank
and its affiliates.  In addition, related provisions of the Federal Reserve Act
and the Federal Reserve regulations (also administered with respect to the Bank
by the FDIC) 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 and to related interests of
such persons.

     The FDIC may impose sanctions on any insured bank that does not operate in
accordance with FDIC regulations, policies and directives.  Proceedings may be
instituted against any insured bank or any director, officer or employee of the
bank that is believed by the FDIC to be engaged in unsafe or unsound practices,
including violation of applicable laws and regulations.  The FDIC may revalue
assets of an institution, based upon appraisals, and may require the
establishment of specific reserves in amounts equal to the difference between
such revaluation and the book value of the assets. The FDIC also is empowered to
assess civil penalties against companies or individuals who violate certain
federal statutes, orders or regulations.  In addition, the FDIC has the
authority to terminate insurance of accounts, after notice and hearing, upon a
finding by the FDIC that the insured institution is or has engaged in any unsafe
or unsound practice that has not been corrected, or is in an unsafe or unsound
condition to continue operations or has violated any applicable law, regulation,
rule or order of, or condition imposed by, the FDIC.  The Bank does not know of
any past or current practice, condition or violation that might lead to
termination of its deposit insurance or to any proceeding by the FDIC against
the Bank or any of its directors, officers or employees.

     Federal Reserve.  Although the Bank is not a member of the Federal Reserve
System, it is subject to Federal Reserve regulations that require it to maintain
reserves against its transaction accounts (primarily checking accounts).
Because reserves generally must be maintained in cash or in non-interest bearing
accounts, the effect of the reserve requirements is to increase the Bank's cost
of funds.  The Federal Reserve Board regulations currently require that average
daily reserves be maintained against transaction accounts in the amount of 3% of
the aggregate of such net transaction accounts up to $47.8 million, plus 10% of
the total in excess of $47.8 million.

Enactment of FDICIA

     On December 19, 1991, FDICIA became law, which resulted in extensive
changes to the federal banking laws.  The primary purpose of the law was to
authorize additional borrowings by the FDIC in order to provide funds for the
resolution of failing financial institutions.  The law instituted certain
changes to the supervisory process and contained various provisions that may
affect the operations of financial institutions like the Bank.  Certain of these
changes are discussed below.

                                      -33-
<PAGE>

     Prompt Corrective Regulatory Action. FDICIA requires the federal banking
regulators to take prompt corrective action if an institution fails to satisfy
certain minimum capital requirements.  Under FDICIA, capital requirements
include a leverage limit, a risk-based capital requirement, and any other
measure of capital deemed appropriate by the federal banking regulators for
measuring the capital adequacy of an insured depository institution.  All
institutions, regardless of their capital levels, are restricted from making any
capital distribution or paying any management fees that would cause the
institution to fail to satisfy the minimum levels for any of its capital
requirements.  An institution that fails to meet the minimum level for any
relevant capital measure (an "undercapitalized institution") may be: (i)
subject to increased monitoring by the appropriate federal banking regulator;
(ii) required to submit an acceptable capital restoration plan within 45 days;
(iii) subject to asset growth limits; and (iv) required to obtain prior
regulatory approval for acquisitions, branching and new lines of businesses.
The capital restoration plan must include a guarantee by the institution's
holding company that the institution will comply with the plan until it has been
adequately capitalized on average for four consecutive quarters, under which the
holding company would be liable up to the lesser of 5% of the institutions's
total assets or the amount necessary to bring the institution into capital
compliance as of the date it failed to comply with its capital restoration plan.
A "significantly undercapitalized" institution, as well as any undercapitalized
institution that does not submit an acceptable capital restoration plan, may be
subject to regulatory demands for recapitalization, broader application of
restrictions on transactions with affiliates, limitations on interest rates paid
on deposits, asset growth and other activities, possible replacement of
directors and officers, and restrictions on capital distributions by any bank
holding company controlling the institution.  Any company controlling the
institution may also be required to divest the institution.  The senior
executive officers of the institution could not receive bonuses or increases in
compensation without prior approval and the institution would be prohibited from
making payments of principal or interest on its subordinated debt.  If an
institution's ratio of tangible capital to total assets falls below a level
established by the appropriate federal banking regulator, which may not be less
than 2% tangible equity nor more than 65% of the minimum leverage capital level
otherwise required (the "critical capital level"), the institution will be
subject to conservatorship or receivership within 90 days unless periodic
determinations are made that forbearance from such action would better protect
the deposit insurance fund.  Unless appropriate findings and certifications are
made by the appropriate federal bank regulatory agencies, a critically
undercapitalized institution must be placed in receivership if it remains
critically undercapitalized on average during the calendar quarter beginning
270 days after the date it became undercapitalized.

     Conservatorship and Receivership Amendments.  FDICIA amended the grounds
for the appointment of a conservator or receiver for any insured depository
institution to include the following events:  (i) consent by the board of
directors of the institution; (ii)  cessation of the institution's status as an
insured depository institution; (iii) the institution is undercapitalized and
has no reasonable prospects of becoming adequately capitalized when required to
do so, fails to submit an acceptable capital plan or materially fails to
implement an acceptable capital plan; or (iv) the institution is critically
undercapitalized or otherwise has substantially insufficient capital.  FDICIA
provides that an institution's directors shall not be liable to its stockholders
or creditors for acquiescing in or consenting to the appointment of the FDIC or
RTC as receiver or conservator or to a supervisory acquisition of the
institution.

                                      -34-
<PAGE>

     Standards for Safety and Soundness.  FDICIA also required the federal bank
regulatory agencies to prescribe, by regulation, standards for all insured
depository institutions and depository institution holding companies relating
to, among other things,:  (i) internal controls, information systems and
internal audit systems; (ii) loan documentation; (iii) credit underwriting;
(iv) interest rate risk exposure; (v) asset growth; and (vi) compensation, fees
and benefits.

     Other Deposit Insurance Reforms.  FDICIA amended the Federal Deposit
Insurance Act to prohibit insured depository institutions that are not well-
capitalized from accepting brokered deposits unless a waiver has been obtained
from the FDIC.  Deposit brokers are required to register with the FDIC.  FDICIA
authorized the FDIC to privately reinsure up to 10% of its risk of loss with
respect to an institution and base its assessment on the cost of such
reinsurance.  With certain exceptions, state chartered banks are limited to the
activities of national banks.  The federal bank regulatory agencies are required
to biannually review risk-based capital standards to ensure that they adequately
address interest rate risk, concentration of credit risk and risks from non-
traditional activities.

     Consumer Protection Provisions.  FDICIA also sought to encourage
enforcement of existing consumer protection laws and enacted new consumer
oriented provisions including a requirement of notice to regulators and
customers for any proposed branch closing and provisions intended to encourage
the offering of "lifeline" banking accounts and lending in distressed
communities.  FDICIA also required depository institutions to make additional
disclosures to depositors with respect to the rate of interest and the terms of
their deposit accounts.

Other Legislation

     In September 1994, the federal Riegle-Neal Interstate Banking and Branching
Efficiency Act was enacted.  The Act allows bank holding companies, beginning
one year following enactment of the legislation, to acquire existing banks
across state lines, regardless of state statutes.  Beginning in June 1997, banks
were permitted to consolidate interstate subsidiaries into branches and merge
with a bank across state lines to the extent that the applicable states had not
"opted out of interstate branching" prior to the effectiveness of the branching
provisions.  The Act also permits de novo branching to the extent that a
particular state opts into the de novo branching provisions.  The Act provides a
concentration limitation with a nationwide limitation of 10% of total deposits
of insured depository institutions in the United States and 30% of total
deposits of insured depository institutions in a specific state.

     The Riegle Community Development and Regulatory Improvement Act of 1994
also was enacted in September 1994, and provides for the creation of a community
development financial institutions fund to promote economic revitalization in
community development.  Banks and savings institutions are allowed to
participate in such community development banks.  The Act also contains
provisions designed to enhance small business capital formation and to enhance
disclosure with regard to high cost mortgages for the protection of consumers.
The Act also contains more than 50 regulatory relief provisions that apply to
banks and savings institutions including the coordination of examinations by
various federal agencies, coordination of frequency and types of reports
financial institutions are required to file and reduction of examinations for
well-capitalized institutions.

                                      -35-
<PAGE>

     The Georgia legislature enacted legislation which, effective July 1, 1996,
allowed Georgia-based banks to branch into up to three counties in addition to
the county in which their main office is located.  This same legislation will
eliminate all branching restrictions, thereby permitting unrestricted state-wide
branching, effective July 1, 1998.

Regulation Of CLC

     As a consumer finance company, CLC is subject to regulation by the
Commissioner of Insurance of the State of Georgia, also known as the Georgia
Industrial Loan Commissioner (the Commissioner), pursuant to the Georgia
Industrial Loan Act (the GILA).  CLC is required to file certain reports and
such additional information as the Commissioner may require pursuant to the
GILA, and is subject to periodic examinations of its books, accounts, and
records by the Commissioner's duly authorized representatives.  Each office of
CLC is licensed by the Commissioner separately, and, if CLC wishes to move an
office within a county, written notice must be given to the Commissioner
supplying facts and circumstances showing how the removal to a new location will
promote the convenience and advantage of that community.  Licenses must be
renewed on an annual basis.  CLC may loan any sum of money not to exceed $3,000
for a period not to exceed 36 months and 15 days and may charge, contract for,
collect, and receive interest and fees on said loans, pursuant to the GILA.

     As a subsidiary of the Company, CLC also is subject to examination by the
Federal Reserve pursuant to the BHCA and by the Georgia Department pursuant to
the GBHCA.  The Federal Reserve and the Georgia Department also may make
examinations of CLC.


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

     The Company and the Bank operate from a main office and two branch offices
in Paulding County, Georgia.  The main office, built in 1988 and located at
3844 Atlanta Highway in Hiram, Georgia, contains approximately 16,000 square
feet. The Bank owns the land and the building at this location. The Company uses
the premises, equipment and furniture of the Bank without payment of any fees to
the Bank. Metroplex and CashTrans lease office space in Dallas, Georgia. CLC
leases office space in Woodstock, Georgia, Rockmart, Georgia, and Rossville,
Georgia.

     The Bank opened a full service branch office at 100 Hardee Street, Dallas,
Paulding County, Georgia in June 1991.  The Bank leases the land and owns the
building at this location, which contains approximately 1,150 square feet and
includes three teller stations and two drive-in window teller stations.  The
lease on this property has been extended until June 2000.  In December 1991, the
Bank also opened a full service office located in the Kroger grocery store of
the Paulding Commons Shopping Center, 4215 Jimmy Lee Smith Parkway in Hiram,
Georgia.  The Bank leases its office space in the grocery store and owns the
furniture, fixtures and equipment used in the Bank office. In January 1996, the
Bank opened a full service office at 105 Brownsville Road, Powder Springs,
Georgia which is located in the Brownsville Crossing Shopping Center.  The Bank
leases its office space in the shopping center and owns the furniture, fixtures,
and equipment used in the Bank office.

                                      -36-
<PAGE>

     At December 31, 1997, the cost of office properties and equipment (less
allowances for depreciation and amortization) owned by the Company was
$2,141,654.  Data processing services are provided by an outside service bureau.

     The Company believes that its facilities are adequate and suitable for the
Company's current business and its anticipated business for the foreseeable
future.

     The Company is unaware of any potential environmental liability that it may
incur in connection with any properties or other assets owned by it.


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

     There are no material legal proceedings to which the Company or the Bank is
a party or to which any of their properties is subject.  The Bank is
periodically involved as a plaintiff or defendant in various legal actions in
the ordinary course of its business.


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

     No matters were submitted to a vote of shareholders of the Company during
the fourth quarter of the Company's fiscal year ended December 31, 1997.


ITEM 4(A).  EXECUTIVE OFFICERS OF THE COMPANY AND BANK
------------------------------------------------------

     Set forth below is information as of January 31, 1998 regarding the
executive officers of the Company and the Bank:

                                   Principal Occupation
     Name              Age         During The Past Five Years
     ----              ---         --------------------------


Ronnie L. Austin       48          Mr. Austin is a Director and the President
                                   and Chief Executive Officer of the Company
                                   and the Bank. He has served as the President
                                   and Chief Executive Officer of the Company
                                   since its organization in October 1988.
                                   Before assuming his position as President and
                                   Chief Executive Officer of the Bank in
                                   December 1986, Mr. Austin served as Executive
                                   Vice President and Senior Loan Officer of the
                                   Peoples Bank of Bartow County from January
                                   1985 to November 1986 and as Vice President
                                   and Senior Loan Officer of the First National
                                   Bank of Paulding County from June 1975 to
                                   January 1985.

                                      -37-
<PAGE>

Angel J. Byrd          42          Ms. Byrd has served as Comptroller of the
                                   Company since April 1996 and was elected as
                                   Secretary of the Company in December 1997.
                                   Ms. Byrd also has served as Senior Vice
                                   President and Chief Financial Officer of the
                                   Bank since April 1996. Prior to 1996, Ms.
                                   Byrd served as Vice President and Chief
                                   Financial Officer of the Bank since December
                                   1991. Prior to December 1997, Ms. Byrd served
                                   as Assistant Secretary of the Company. She
                                   also has served as Cashier of the Bank since
                                   October 1987. Prior to her employment by the
                                   Bank, she served as Loan Accounting
                                   Supervisor of Barnett Bank, N.A. in Marietta
                                   from March 1986 to October 1987 and as
                                   Operations Officer of The Citizens Bank in
                                   Dallas, Georgia from May 1985 to March 1986.

Genevieve B. Cole      42          Ms. Cole has served as Executive Vice
                                   President and Chief Administrative Officer of
                                   the Bank since April 1996, having served as
                                   Vice President and Chief Administrative
                                   Officer of the Bank since July 1995. She
                                   served as Vice President and Chief Lending
                                   Officer of the Bank since August 1988 and as
                                   Assistant Secretary of the Company since July
                                   1991. Prior to her employment by the Bank,
                                   she was Assistant Vice President and Senior
                                   Loan Officer of First National Bank in
                                   Dallas, Georgia from December 1987 to August
                                   1988; Assistant Vice President of First
                                   National Bank from March 1986 to December
                                   1987; and Loan Officer of First National Bank
                                   from September 1983 to March 1986.

Edward J. Cooney       30          Mr. Cooney has served as Senior Vice
                                   President and Chief Credit Officer since
                                   January 1998. Prior to his employment with
                                   the Bank, he served as Senior Credit Analyst
                                   from August 1995 to January 1998, and
                                   Internal Auditor from July 1994 to August
                                   1995, at The Bankers Bank in Atlanta,
                                   Georgia. From August 1991 to July 1994, he
                                   served as Supervising Senior Accountant at
                                   Evans, Porter, Bryan and Co. in Atlanta,
                                   Georgia.

                                      -38-
<PAGE>

Michael Low            40          Mr. Low has served as Senior Vice President
                                   of the Bank since April 1996, having served
                                   as Chief Credit Officer from April 1996 to
                                   December 1997. Prior to 1996, Mr. Low served
                                   as Vice President and Chief Lending Officer
                                   of the Bank since September 1995. Prior to
                                   his employment with the Bank, he served as
                                   Vice President Commercial Lending from 1991
                                   and Commercial Lender and Special Asset
                                   Manager from 1989 with West Georgia National
                                   Bank in Carrollton, Georgia. From 1980 until
                                   1989, he served at the Jasper Banking Company
                                   in Jasper, Georgia, as Vice President,
                                   Lending Officer, and Collections Manager,
                                   Collateral Manager, and Collector.

     The executive officers of the Company and the Bank are elected annually by
the respective Boards of Directors for terms of one year or until their
successors are elected and qualified, subject to removal by the respective
Boards of Directors at any time.


                                    PART II
                                    -------


ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------------------

     Information relating to the market for, holders of and dividends paid on
the Company's Common Stock is set forth under the caption "Selected Annual
Consolidated Financial Data in the Company's 1997 Annual Report to Stockholders.
Such information is incorporated herein by reference.

     The Company's ability to pay dividends is dependent on dividends paid by
the Bank, if any. Additionally, Georgia law imposes certain restrictions on the
payment of cash dividends by the Bank. See "Item 1. Business - Supervision and
Regulation."


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
------------------------------------------------------------------

     Selected consolidated financial data for the Company for each of the five
fiscal years ending December 31, 1997, 1996, 1995, 1994 and 1993 are set forth
under the caption "Selected Annual Consolidated Financial Data" in the Company's
1997 Annual Report to Stockholders.  Such information is incorporated herein by
reference.  A discussion of the Company's financial condition and results of
operations at and for the dates and periods covered by the consolidated
financial statements of the Company is set forth in the Company's 1997 Annual
Report to Stockholders  under the caption "Management's Discussion and Analysis
of  Financial Condition and Results of Operations."  Such discussion is
incorporated herein by reference.

                                      -39-
<PAGE>

ITEM 7.  FINANCIAL STATEMENTS
-----------------------------

     The following consolidated financial statements of the Company, together
with the Report of Independent Certified Public Accountants thereon, which are
set forth in the Company's 1997 Annual Report to Stockholders, are incorporated
herein by reference:

     Consolidated Balance Sheets as of December 31, 1997 and 1996

     Consolidated Statements of Earnings for the years ended
       December 31, 1997, 1996 and 1995

     Consolidated Statements of Changes in Stockholders' Equity for
       the years ended December 31, 1997, 1996 and 1995

     Consolidated Statements of Cash Flows for the years ended
       December 31, 1997, 1996 and 1995

     Notes to Consolidated Financial Statements


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

     Neither the Company nor the Bank had any change in accountants or
disagreements with accountants on accounting and financial disclosure during the
two most recent fiscal years or subsequently.


                                    PART III
                                    --------


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

     Information relating to the Directors of the Company is set forth under the
caption "Proposal 1 - Election of Directors" on pages 3 through 7 of the Proxy
Statement for the Company's 1998 Annual Meeting of Shareholders (1998 Proxy
Statement).  Such information is incorporated herein by reference.  Such
information is incorporated herein by reference.  Information relating to the
executive officers of the Company is set forth in Item 4(A) of this report under
the caption "Executive Officers of the Company and the Bank."  Certain Directors
of the Company and the Bank failed to file on a timely basis reports required by
Section 16(a) of the Securities Exchange Act of 1934 during the most recent
fiscal year.  Mr. Austin failed to file in a timely manner one report relating
to one transaction.  Mr. Berry failed to file in a timely manner three reports
relating to three transactions. Mr. Foster failed to file one report in a timely
manner relating to one transaction.  Mr. Helms failed to file one report in a
timely manner relating to one transaction.  Mr. Russ Parker, a Director of the

                                      -40-
<PAGE>

Bank, failed to file one report in a timely manner relating to one transaction.
Other than as described above, to the knowledge of the Company, each person who,
at any time during the year ended December 31, 1997, was a Director, Executive
Officer, or beneficial owner of more than ten percent of the Company's Common
Stock filed, on a timely basis, all reports required to be filed by them, during
such year, pursuant to Section 16(a) of the Securities Exchange Act of 1934.


ITEM 10.  EXECUTIVE COMPENSATION
--------------------------------

     Information relating to executive compensation is set forth under the
caption "Proposal 1 -Election of Directors - Compensation of Directors" on
page 8 of the 1998 Proxy Statement and under the caption "Proposal 1 - Election
of Directors - Executive Compensation" on pages 9 and 10 of the 1998 Proxy
Statement and under the caption "Proposal 1 - Election of Directors -
Transactions with Management" on page 10 of the 1998 Proxy Statement. Such
information is incorporated herein by reference.


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

     Information regarding ownership of the Company's $2.50 par value Common
Stock by certain persons is set forth under the captions "Voting - Principal
Stockholders" on page 2 of the 1998 Proxy Statement and "Proposal 1 - Election
of Directors - Nominees" on pages 4 through 7 of the 1998 Proxy Statement.  Such
information is incorporated herein by reference.


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

     Information regarding certain transactions between the Company and
Directors, executive officers and certain shareholders, and their affiliates, is
set forth under the caption "Proposal 1 -Election of Directors - Transactions
with Management" on page 10 of the 1998 Proxy Statement. Such information is
incorporated herein by reference.


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

     (a)    Exhibits

            The following exhibits are filed as a part of or incorporated by
            reference in this report:

  Exhibit No.                   Description
  -----------                   -----------

     3.1*          Articles of Incorporation of the Company

     3.2+          Bylaws of the Company

                                      -41-
<PAGE>

      3.3*     Articles of Incorporation of the Bank

      3.4+     Bylaws of the Bank

      4.+      Specimen Stock Certificate representing shares of the Company's
               $2.50 par value common stock

      10.1*@   1988 Stock Option Plan and related specimen copy of option

      10.2@    1993 Employee Stock Option Plan
               (Filed as Exhibit 10.2 to the Company's Annual Report on Form 10-
               K for the year ended December 31, 1992)

      10.3@    1993 Directors Stock Option Plan
               (Filed as Exhibit 10.3 to the Company's Annual Report on Form 10-
               K for the year ended December 31, 1992)

      10.4*    Agreement and Plan of Merger and Reorganization dated October 7,
               1990 among the Company, the Bank and CTFS Interim Corporation, as
               amended by the First Amendment to Agreement and Plan of Merger
               and Reorganization dated October 24, 1990

      10.5     Lease dated June 9, 1989 by and between First Baptist Church of
               Dallas, Georgia and the Bank relating to lease of real property
               (Filed as Exhibit 10.5 to the Company's Annual Report on Form 10-
               k for the year ended December 31, 1992)

      10.6     License and Equipment Purchase Agreement dated as of July 27,
               1991 by and between Bank South, National Association and
               Community Trust Bank relating to branch in Paulding Commons
               Kroger store
               (Filed as Exhibit 10.6 to the Company's Annual Report on Form 10-
               K for the year ended December 31, 1992)

      10.7     Lease dated May 25, 1995 by and between Brock Investments, Inc.,
               of Hiram, Georgia and the Bank relating to lease of real property
               (Filed as Exhibit 10.7 to the Company's Annual Report on Form 10-
               K for the year ended December 31, 1995)

      10.8     Lease Extension Agreement dated September 30, 1996 by and between
               First Baptist Church of Dallas, Georgia and the Bank relating to
               lease of real property
               (Filed as Exhibit 10.8 to the Company's Annual Report on Form 10-
               K for the year ended December 31, 1996)

                                     -42-
<PAGE>

      10.9     Loan and Stock Pledge Agreement dated November 14, 1997, between
               the Company and The Bankers Bank
               (Filed as Exhibit 2 to the Company's Current Report on Form 8-K
               dated November 14, 1997)

      10.10+@  Employment Agreement dated January 1, 1998, between the Company
               and Ronnie Austin

      13.+     1997 Annual Report**

      20.+     Proxy Statement for 1998 Annual Meeting of Stockholders

      21.+     Subsidiaries

      27.+     Financial Data Schedule (electronic filing only)
__________

*Incorporated herein by reference to the exhibit of the same number in the
Company's Registration Statement on Form S-4, as amended (No. 33-37601).

** Certain sections of the Company's 1997 Annual Report, as indicated in this
report, are incorporated herein by reference.  Other than as noted herein, the
Company's 1997 Annual Report is furnished to the Commission solely for its
information and is not deemed to be "filed" with the Commission or subject to
the liabilities of Section 18 of the Securities Exchange Act of 1934.

+ Filed herewith.

@ The referenced exhibit is a compensatory management contract, plan, or
arrangement.



      (b)  Reports on Form 8-K

      One Current Report on Form 8-K was filed by the Company with the
      Commission during the quarter ended December 31, 1997.  This Form 8-K was
      dated November 14, 1997, and reported events occurring under Items 2 and 5
      of Form 8-K.



                                     -43-
<PAGE>

                                  SIGNATURES


     In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


                    COMMUNITY TRUST FINANCIAL SERVICES CORPORATION
                                  (Registrant)


Date: March 20, 1998     By:  /s/ Ronnie L. Austin
                              --------------------
                              Ronnie L. Austin
                              President and Chief
                              Executive Officer


                         By:  /s/ Angel J. Byrd
                              ----------------
                              Angel J. Byrd
                              Comptroller
                              (principal accounting officer)



     In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities indicated on March 20, 1998.

    Signature                                  Title
    ---------                                  -----



/s/ W. A. Foster III                   Chairman of the Board
--------------------
W. A. Foster III



/s/ Ronnie L. Austin                   President, Chief Executive Officer and
-------------------
Ronnie L. Austin                       Director (principal executive officer and
                                       principal financial officer)


                                     -44-
<PAGE>

/s/ George Berry                       Director
----------------
George Berry



/s/ R. Alan Bullock                    Director
-------------------
R. Alan Bullock



/s/ Bobbie P. Cooper                   Director
--------------------
Bobbie P. Cooper



/s/ J. Calvin Earwood                  Director
---------------------
J. Calvin Earwood



/s/ Tommie R. Graham                   Director
--------------------
Tommie R. Graham



/s/ John C. Helms                      Director
-----------------
John C. Helms



/s/ C. D. Rampley                      Director
-----------------
C. D. Rampley


                                     -45-
<PAGE>

                               INDEX OF EXHIBITS
                               -----------------

Exhibit No.              Description                              Page No.
-----------              -----------                              --------


     3.1*      Articles of Incorporation of the Company

     3.2+      Bylaws of the Company

     3.3*      Articles of Incorporation of the Bank

     3.4+      Bylaws of the Bank

     4.+       Specimen Stock Certificate representing shares of the Company's
               $2.50 par value common stock

     10.1*@    1988 Stock Option Plan and related specimen copy of option

     10.2@     1993 Employee Stock Option Plan
               (Filed as Exhibit 10.2 to the Company's Annual Report on Form 10-
               K for the year ended December 31, 1992)

     10.3@     1993 Directors Stock Option Plan
               (Filed as Exhibit 10.3 to the Company's Annual Report on Form 10-
               K for the year ended December 31, 1992)

     10.4*     Agreement and Plan of Merger and Reorganization dated October 7,
               1990 among the Company, the Bank and CTFS Interim Corporation, as
               amended by the First Amendment to Agreement and Plan of Merger
               and Reorganization dated October 24, 1990

     10.5      Lease dated June 9, 1989 by and between First Baptist Church of
               Dallas, Georgia and the Bank relating to lease of real property
               (Filed as Exhibit 10.5 to the Company's Annual Report on Form 10-
               K for the year ended December 31, 1992)

     10.6      License and Equipment Purchase Agreement dated as of July 27,
               1991 by and between Bank South, National Association and
               Community Trust Bank relating to branch in Paulding Commons
               Kroger store
               (Filed as Exhibit 10.6 to the Company's Annual Report on Form 10-
               K for the year ended December 31, 1992)

     10.7      Lease dated May 25, 1995 by and between Brock Investments, Inc.,
               of Hiram, Georgia and the Bank relating to lease of real property
               (Filed as Exhibit 10.7 to the Company's Annual Report on Form 10-
               K for the year ended December 31, 1995)

                                     -47-
<PAGE>

      10.8     Lease Extension Agreement dated September 30, 1996 by and between
               First Baptist Church of Dallas, Georgia and the Bank relating to
               lease of real property
               (Filed as Exhibit 10.8 to the Company's Annual Report on Form 10-
               K for the year ended December 31, 1996)

      10.9     Loan and Stock Pledge Agreement dated November 14, 1997, between
               the Company and The Bankers Bank
               (Filed as Exhibit 2 to the Company's Current Report on Form 8-K
               dated November 14, 1997)

      10.10+@  Employment Agreement dated January 1, 1998, between the Company
               and Ronnie Austin

      13.+     1997 Annual Report**

      20.+     Proxy Statement for 1998 Annual Meeting of Stockholders

      21.+     Subsidiaries

      27.+     Financial Data Schedule (electronic filing only)
__________

*Incorporated herein by reference to the exhibit of the same number in the
Company's Registration Statement on Form S-4, as amended (No. 33-37601).

** Certain sections of the Company's 1997 Annual Report, as indicated in this
report, are incorporated herein by reference.  Other than as noted herein, the
Company's 1997 Annual Report is furnished to the Commission solely for its
information and is not deemed to be "filed" with the Commission or subject to
the liabilities of Section 18 of the Securities Exchange Act of 1934.

+ Filed herewith.

@ The referenced exhibit is a compensatory management contract, plan, or
arrangement.

                                     -48-