<PAGE>   1
                    U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                  FORM 10-KSB

(Mark One)

[X]      Annual report pursuant to Section 13 or 15(d) of the Securities 
         Exchange Act of 1934

         For fiscal year ended DECEMBER 31, 1998

[ ]      Transition report under Section 13 or 15(d) of the Securities Exchange 
         Act of 1934

         For the transition period from               to                 
                                        -------------    ----------------

         Commission file number                      000-24137
                               ------------------------------------------

                            GATEWAY BANCSHARES, INC.
     --------------------------------------------------------------------
                 (Name of Small Business Issuer in Its Charter)
    
                 GEORGIA                                58-2202210
     --------------------------------             -----------------------
     (State or Other Jurisdiction of                 (I.R.S. Employer
     Incorporation or Organization)                  Identification No.)

     5102 ALABAMA HIGHWAY, P.O. BOX 129, RINGGOLD, GEORGIA       30736
     -----------------------------------------------------     ----------
        (Address of Principal Executive Offices)               (Zip Code)

                                (706) - 965-5500
      -------------------------------------------------------------------
                (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, 
PAR VALUE $5.00.

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 past 90 days. Yes X   No
                                                          --    --
Check if 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 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. [ ]

State issuer's revenues for its most recent fiscal year:  $4,546,537.
                                                        -------------

Aggregate market value of the voting stock held by non-affiliates computed by
reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of a specified date within the past 60 days:
$7,230,202 AS OF MARCH 8, 1999.
-------------------------------

                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

         State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date. 679,048 AS OF MARCH 26,
1998.

   Transitional Small Business Disclosure format (check one): Yes     No X
                                                                 ---    ---

                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Report to Shareholders for the fiscal year ended
December 31, 1998 are incorporated by reference into Part II. Portions of the
Proxy Statement for the Annual Meeting of Shareholders, scheduled to be held
April 15, 1999, are incorporated by reference into Part III.


<PAGE>   2



                               TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                                                                                PAGE
                                                                                                                ----
<S>         <C>                                                                                                 <C>
PART I............................................................................................................1

   ITEM 1.  DESCRIPTION OF BUSINESS...............................................................................1
   ITEM 2.  DESCRIPTION OF PROPERTIES............................................................................16
   ITEM 3.  LEGAL PROCEEDINGS....................................................................................17
   ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................................................17

PART II..........................................................................................................17

   ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS................................17
   ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS................................................................17
   ITEM 7.  FINANCIAL STATEMENTS.................................................................................17
   ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
              ACCOUNTING AND FINANCIAL DISCLOSURE................................................................18

PART III.........................................................................................................18

   ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
              PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.........................................18
   ITEM 10. EXECUTIVE COMPENSATION...............................................................................18
   ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
              AND MANAGEMENT.....................................................................................18
   ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................................................18
   ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K..............................................................19
</TABLE>




                                       i
<PAGE>   3


                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

                                  THE COMPANY

         The Company was incorporated as a Georgia business corporation on
October 3, 1995, and became a bank holding company by acquiring all of the
Common Stock of Gateway Bank & Trust (the "Bank"). The Bank began operations in
April 1997. The Bank is the only subsidiary of the Company.

         The Company was organized to facilitate the Bank's ability to serve
its customers' requirements for financial services. The holding company
structure provides flexibility for expansion of the Company's banking business
through the possible acquisition of other financial institutions and the
provision of additional banking-related services that a traditional commercial
bank may not provide under present laws. For example, banking regulations
require the Bank to maintain a minimum ratio of capital to assets. In the event
that the Bank's growth prevents it from maintaining this minimum ratio, the
Company may borrow funds, subject to capital adequacy guidelines of the Federal
Reserve and contribute them to the capital of the Bank and otherwise raise
capital in a manner unavailable to the Bank under the existing banking
regulations.

         The Company has no present plans to acquire any additional operating
subsidiaries. The Company may, however, make additional acquisitions in the
future in the event that the acquisitions are deemed to be in the best
interests of the Company and its shareholders. Such acquisitions, if any, will
be subject to certain regulatory approvals and requirements. See "Supervision 
and Regulation."


                                    THE BANK

GENERAL

         The Bank began business on April 21, 1997 as a full-service commercial
bank. The Bank offers personal and business checking accounts, interest-bearing
checking accounts, savings accounts and various types of certificates of
deposit. The Bank also offers consumer/installment loans, construction loans,
commercial loans and home equity lines of credit. In addition, the Bank
provides such services as official bank checks and money orders, Mastercard and
Visa credit cards, Visa check cards, safe deposit boxes, traveler's checks,
bank-by-mail, direct deposit of payroll and Social Security checks, U.S.
Savings Bonds, wire transfer of funds and a night depository.

PHILOSOPHY

         The philosophy of the Bank's management is to emphasize prompt and
responsive personal service to residents of Ringgold, Georgia, as well as other
communities located in Catoosa County, in order to attract customers and
acquire market share controlled by other financial institutions in the Bank's
market area. Management believes that the Bank offers residents in Catoosa and
surrounding counties the benefits associated with a locally owned and managed
bank. Management has implemented an active call program, by which officers and
directors promote the Bank by personally describing the products, services and
philosophy of the Bank to both existing customers and new business prospects.
In addition, the President, Executive Vice President and Chief Financial
Officer of the Bank have 


                                      -1-
<PAGE>   4


substantial banking experience in Catoosa County, which gives the Bank an
important asset in its efforts to provide products and services designed to
meet the needs of the Bank's customer base. The Bank's directors are active
members of the business communities in Ringgold and around Catoosa County, and
their continued active community involvement provides them with an opportunity
to promote the Bank and its products and services.

MARKET AREA AND COMPETITION

         The Bank is located in Ringgold, Georgia. The Bank's primary market
area is defined as Catoosa County, Georgia, from which the Bank draws a
majority of its business. The Bank's marketing efforts also are focused in the
adjacent counties of Walker and Whitfield in Georgia and Hamilton County in
Tennessee. The Bank competes for deposits and loan customers with other
financial institutions whose resources are equal to or greater than those
available to the Bank and the Company. There are four commercial banks with
nine offices and two federal credit unions located in Catoosa County. These
financial institutions offer all of the services that the Bank offers.

LOAN PORTFOLIO

         LENDING POLICY. The Bank was established to support Catoosa County and
the immediately-surrounding counties of Walker and Whitfield in Georgia and
Hamilton County in Tennessee. Consequently, the Bank aggressively seeks
creditworthy loans within a limited geographic area. The Bank's primary
commercial lending function is to make consumer loans to individuals and
commercial loans to small and medium-sized businesses and professional
concerns. In addition, the Bank makes real estate-related loans, including
construction loans for residential and commercial properties, and primary and
secondary mortgage loans for the acquisition or improvement of personal
residences. The Bank plans to avoid concentrations of loans to a single
industry or based on a single type of collateral.

         REAL ESTATE LOANS. The Bank's real estate loans consist primarily of
single-family residential construction loans for one-to-four unit family
structures. The Bank requires a first lien position on the land associated with
the construction project and will offer these loans to professional building
contractors and homeowners. Loan disbursements require on-site inspections to
assure the project is on budget and that the loan proceeds are being used for
the construction project and not being diverted to another project. The
loan-to-value ratio for such loans is predominantly 75% of the lower of the
as-built appraised value or project cost, and may be a maximum of 80% if the
loan is amortized. Loans for construction can present a high degree of risk to
the lender, depending upon, among other things, whether the builder can sell
the home to a buyer, whether the buyer can obtain permanent financing, whether
the transaction produces income in the interim and the nature of changing
economic conditions.

         CONSUMER LOANS. The Bank's consumer loans consist primarily of
installment loans to individuals for personal, family and household purposes,
including loans for automobiles, home improvements and investments. Risks
associated with consumer loans include, but are not limited to, fraud,
deteriorated or non-existing collateral, general economic downturn and customer
financial problems.



                                      -2-
<PAGE>   5


         COMMERCIAL LOANS. The Bank's commercial lending is directed
principally toward small to mid-size businesses whose demand for funds fall
within the legal lending limits of the Bank. This category of loans includes
loans made to individual, partnership or corporate borrowers, and obtained for
a variety of business purposes. Risks associated with these loans can be
significant and include, but are not limited to, fraud, bankruptcy, economic
downturn, deteriorated or non-existing collateral and changes in interest
rates.

         INVESTMENTS. In addition to loans, the Bank makes other investments
primarily in obligations of the United States or obligations guaranteed as to
principal and interest by the United States, other taxable securities and other
obligations of states and municipalities. As of December 31, 1998, investment
securities comprised approximately 42% of the Bank's assets, with net loans
comprising approximately 47% of the Bank's assets. The Bank also engages in
Federal funds transactions with its principal correspondent banks and
anticipates it will primarily act as a net seller of funds. The sale of Federal
funds amounts to a short-term loan from the Bank to another bank.

         DEPOSITS. The Bank offers a wide range of commercial and consumer
deposit accounts, including checking accounts, money market accounts, a variety
of certificates of deposit, and individual retirement accounts. The primary
sources of deposits are residents of, and businesses and their employees
located in, Catoosa County, and to a lesser extent, Walker County and Whitfield
County in Georgia and Hamilton County in Tennessee. Deposits are obtained
through personal solicitation by the Bank's officers and directors, direct mail
solicitations and advertisements published in the local media. The Bank offers
a broad array of competitively priced deposit services, including demand
deposits, regular savings accounts, money market deposits (transaction and
investment), certificates of deposit, retirement accounts, and other deposit or
funds transfer services which may be permitted by law or regulation and which
may be offered to remain competitive in the market.

         ASSET AND LIABILITY MANAGEMENT. It is the Bank's objective to manage
its assets and liabilities to provide a satisfactory and consistent level of
profitability within the framework of established cash, loan, investment,
borrowing and capital policies. Certain Bank officers are responsible for
developing and monitoring policies and procedures that ensure acceptable
composition of the asset/liability mix. Management's overall philosophy is to
support asset growth primarily through growth of core deposits, which include
deposits of all categories made by individuals, partnerships and corporations.
Management seeks to invest the largest portion of the Bank's assets in
consumer/installment, commercial and construction loans.

         The Bank's asset/liability mix is monitored to control
interest-sensitive assets and liabilities so as to minimize the impact of
substantial movements in interest rates on the Bank's earnings.

                                   EMPLOYEES

         At December 31, 1998, the Company and its subsidiary employed 21
full-time employees and one part-time employee. The Company considers its
relationship with its employees to be excellent.




                                      -3-
<PAGE>   6

                        SELECTED STATISTICAL INFORMATION

The following tables set forth certain statistical information and should be
read in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations incorporated by reference in this Report
and the Company's consolidated financial statements and notes thereto also
incorporated by reference in this Report. The average statistical data
presented in this report are generally based on daily average balances.

DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST RATES
AND INTEREST DIFFERENTIAL

The table below shows, for the periods indicated, the daily average balances
outstanding for the major categories of interest earning assets and interest
bearing liabilities, and the average interest rate earned or paid thereon. Such
yields are calculated by dividing income or expense by the average balance of
the corresponding assets or liabilities.




           AVERAGE BALANCES, INTEREST INCOME/EXPENSE AND YIELDS/RATES
                    Taxable Equivalent Basis (in Thousands)

<TABLE>
<CAPTION>

                                                           YEAR ENDED DECEMBER 31, 1998           Year Ended December 31, 1997
                                                           -----------------------------          ----------------------------
                                                            AVERAGE     INCOME/    YIELD/          Average     Income/   Yield/
                                                            BALANCE     EXPENSE     RATE           Balance     Expense   Rate
                                                            -------     -------     ----           -------     -------   ----
<S>                                                      <C>          <C>          <C>          <C>           <C>     <C>
Assets
  Earning assets:
    Loans, net of unearned income (1)................    $   27,335   $    3,014     11.03%     $    5,778    $ 744       12.88%
    Investment Securities:
      Taxable........................................        19,630        1,241      6.32           6,643      391        5.89
      Tax-exempt.....................................             0            0         0               0        0           0
                                                         ----------   ----------   -------      ----------    -----   ---------
        Total investment securities..................        19,630        1,241      6.32           6,643      391        5.89
      Federal funds sold.............................         1,605           99      6.17           1,238       67        5.65
                                                         ----------   ----------                ----------    -----   ---------
        Total interest-earning assets (2)............        48,570        4,354      8.96          13,659    1,202        8.80
                                                                      ----------                ----------    -----   ---------

  Non interest-earning assets:
    Cash and due from banks..........................         1,992                                    622
    Premises and equipment...........................         1,707                                  1,698
    Accrued interest and other assets................           621                                    233
    Allowance for loan losses........................         (268)                                   (52)
                                                         ----------                             ----------
      Total assets...................................    $   52,622                             $   16,160
                                                         ==========                             ==========

Liabilities and Shareholders' Equity Interest-bearing 
  liabilities:
    Demand deposits..................................    $    7,702          288      3.74      $    2,739       92        3.35
    Savings deposits.................................         6,635          332      5.00           1,275       61        4.78
    Time deposits....................................        26,957        1,646      6.11           4,478      276        6.16
                                                         ----------    ---------  --------     -----------    -----      ------
                                                             41,294        2,266      5.49           8,492      429        5.05
    Other short-term borrowings......................         1,109           61      5.50              19        1        5.26
                                                         ----------    ---------  --------     -----------    -----      ------
      Total interest-bearing liabilities.............        42,403        2,327      5.49           8,511      430        5.05
                                                                       ---------  --------                    -----      ------
  Non interest-bearing liabilities:
    Demand deposits..................................         3,506                                  1,290
    Accrued interest and other liabilities...........           239                                     32
    Shareholders' equity                                      6,474                                  6,327
                                                         ----------                            -----------

      Total liabilities and shareholders' equity.....    $   52,622                            $    16,160
                                                         ==========                            ===========

Net interest income/net interest spread..............                      2,027       3.47%                    772       3.75%
                                                                       ---------     ======                  ------
Net yield on earning assets..........................                                  4.17%                              5.65%
                                                                                     ======                             ====== 
Taxable equivalent adjustment:
  Loans..............................................                          0                                  0
  Investment securities..............................                          0                                  0
                                                                       ---------                           --------
    Total taxable equivalent adjustment..............                          0                                  0
                                                                       ---------                           --------
Net interest income..................................                  $   2,027                           $    772
                                                                       =========                           ========
</TABLE>

------------------------------
(1) Average loans include nonaccrual loans. All loans and deposits are
    domestic.
(2) Tax equivalent adjustments have been based on an assumed tax rate of 34
    percent, and do not give effect to the disallowance for federal income tax
    purpose of interest expense related to certain tax-exempt earning assets.



                                      -4-
<PAGE>   7


The following table sets forth, for the years ended December 31, 1998 and 1997,
a summary of the changes in interest income and interest expense resulting from
changes in interest rates and in changes in the volume of earning assets and
interest-bearing liabilities, segregated by category. The change due to volume
is calculated by multiplying the change in volume by the prior year's rate. The
change due to rate is calculated by multiplying the change in rate by the prior
year's volume. The change attributable to both volume and rate is calculated by
multiplying the change in volume by the change in rate. Figures are presented
on a taxable equivalent basis.

<TABLE>
<CAPTION>

                                        RATE/VOLUME VARIANCE ANALYSIS
                                                      CHANGE                         INTEREST                   VARIANCE (1)
                               AVERAGE VOLUME       IN  VOLUME    AVERAGE RATE    INCOME/EXPENSES   VARIANCE    ATTRIBUTED TO
                            -------------------     ----------   -------------    ---------------  ---------  --------------- 
                            1998           1997      1998-97     1998      1997   1998      1997   1998-97    VOLUME     RATE
                            ----        -------      -------     ----      ----   ----      ----   -------    ------     ----
                                                                              ((in Thousands)


<S>                           <C>         <C>         <C>        <C>     <C>     <C>     <C>       <C>         <C>       <C>
EARNING ASSETS:
Loans, net of unearned
    Income.................   $  27,335   $  5,778     $21,557   11.03%  12.88%  $3,014  $  744    $ 2,270     $2,377    $  (107)
Investment securities:
  Taxable..................      19,630      6,643      12,987    6.32    5.89    1,241     391        850        821         29
  Tax exempt...............          -0-        -0-         -0-     -0-     -0-      -0-     -0-        -0-        -0-        -0-
                              ---------   --------     -------                   ------  ------    -------     ------    -------
    Total investment
      Securities...........      19,630      6,643      12,987    6.32    5.89    1,241     391        850        821         29
Federal funds sold.........       1,605      1,238         367    6.17    5.33       99      67         32         22         10
                              ---------   --------     -------                   ------  ------    -------     ------    -------
    Total earning assets...   $  48,570   $ 13,659     $34,911    8.96    8.80   $4,354  $1,202    $ 3,152     $3,220    $   (68) 
                              =========   ========     =======                   ======  ======    =======     ======    =======

INTEREST-BEARING LIABILITIES:
Deposits:
  Demand...................   $   7,702   $  2,739     $ 4,963    3.74    4.31   $  288  $   92   $    196     $  212     $  (16)
  Savings..................       6,635      1,275       5,360    5.00    4.78      332      61        271        268          3
  Time.....................      26,957      4,478      22,479    6.11    6.16    1,646     276      1,370      1,372         (2)
                              ---------   --------     -------                   ------  ------   --------      -----     -------

    Total interest-bearing
      deposits.............      41,294      8,492      32,802    5.49%   5.05%   2,266     429      1,837      1,852        (15)

Other short-term
   borrowings..............       1,109         19       1,090    5.50%   5.26%      61       1         60         60         -0-
                              ---------   --------     -------                   ------  ------    -------     ------    -------

    Total interest-bearing
       Liabilities.........   $  42,403   $  8,511     $33,892    5.49%   5.05    2,327     430      1,897      1,912        (15)
                              =========   ========     =======                    -----  ------    -------     ------    -------

Net interest income/net
   interest spread.........                                       3.47%   3.75%  $2,027  $  772    $ 1,255     $1,308    $   (53)
                                                                 =====   =====   ======  ======    =======     ======    =======

Net yield on earning assets                                       4.17%            5.65%
                                                                  ====             ====

Net cost of funds..........                                       4.79%            3.15%
                                                                  ====             ====
</TABLE>


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

(1) The change in interest due to both rate and volume has been allocated to
volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the change in each.



                                      -5-
<PAGE>   8

INVESTMENT PORTFOLIO

The carrying amount of investment securities at the end of the year is set
forth in the following table.

                              INVESTMENT PORTFOLIO


<TABLE>
<CAPTION>

                                                                                 DECEMBER 31,
                                                                  ---------------------------------------
                                                                        1998                    1997 
                                                                        ----                    -----
                                                                                 (in Thousands)
<S>                                                                 <C>                      <C>
SECURITIES HELD TO MATURITY:
----------------------------
   U.S. Government agencies..........................               $      7,513             $        945
   Municipal securities..............................                         50                      -0-
                                                                    ------------             ------------
                                                                    $      7,563             $        945
                                                                    ============             ============

SECURITIES AVAILABLE FOR SALE:
------------------------------
   U.S. Government agencies..........................               $     12,332             $     13,733
   Mortgage backed securities........................                     12,195                      514
   Equity: Federal Home Loan Bank securities.........                        118                       17
                                                                    ------------             ------------
                                                                    $     24,645             $     14,264
                                                                    ============             ============
</TABLE>


Average taxable securities were 100 percent of the portfolio in 1998 which
reflects management's intent to maximize investment yields until the Company
reaches a level of cumulative profitability and becomes subject to income
taxation.

The maturities and weighted average yields of the investments in the 1998
portfolio of investment securities are presented below. The average maturity of
the investment portfolio is 11.03 with an average yield of 6.32 percent.

                     INVESTMENT PORTFOLIO MATURITY SCHEDULE
<TABLE>
<CAPTION>

                                                                             Maturing
                                         ------------------------------------------------------------------------------------------
                                            Within                   After One But                After Five But         After
                                           One Year                Within Five Years             Within Ten Year        Ten Year
                                           --------                -----------------             ---------------        --------
                                        Amount   Yield           Amount     Yield              Amount      Yield   Amount    Yield
                                        ------   -----           ------     -----              ------      -----   ------     -----
                                                                        (in Thousands)
<S>                                     <C>      <C>           <C>           <C>             <C>            <C>    <C>       <C> 
SECURITIES - AVAILABLE FOR SALE:
--------------------------------
    U. S. Government agencies........   $ 4,751     5.84%      $   3,614     5.87%           $   4,010      6.15%  $  -0-    0.00%
    Mortgage backed securities.......       -0-     0.00           2,676     6.10                4,909      6.27    4,563    6.55
    Other:  Federal Home
       Loan Bank.....................       118     7.58             -0-     0.00                   -0-     0.00      -0-    0.00
                                        -------                ---------                      ---------     
           Total.....................   $ 4,869     5.87       $   6,290     5.96             $   8,919     6.21  $ 4,563    6.55
                                        =======                =========                      =========           =======

SECURITIES HELD TO MATURITY:
----------------------------
    U.S. Government agencies.........   $   501    6.25        $   2,262     6.09             $   4,750     6.39  $   -0-    0.00
    Municipal securities.............        50    9.05              -0-     0.00                   -0-     0.00      -0-    0.00
                                        -------                ---------                      ----------          -------
                                        $   551    6.50        $   2,262     6.09            $    4,750     6.39  $   -0-    0.00
                                        =======                =========                      ==========          =======
</TABLE>


There were no securities held by the Company, whose aggregate value on December
31, 1998 exceeded ten percent of the Company's shareholders' equity at that
date. (1)

-------------
(1) Securities which are payable from and secured by the same source of revenue
or taxing authority are considered to be securities of a single issuer.
Securities of the U. S. Government and U. S. Government agencies and
corporations are not included.


                                      -6-
<PAGE>   9
LOAN PORTFOLIO

The following table shows the classification of loans by major category at
December 31, 1998 and 1997.

                                 TYPES OF LOANS

<TABLE>
<CAPTION>

                                                            
                                        DECEMBER 31, 1998             December 31, 1997
                                        -----------------             -----------------
                                                      PERCENT                      Percent
                                      AMOUNT         OF TOTAL        Amount        of Total
                                      ------         --------        ------        --------
                                          (in Thousands)                 (in Thousands)
<S>                                   <C>           <C>             <C>              <C>
Commercial, financial
  and agricultural .............      $10,600          29.1%        $ 6,993           40.7%
Real estate - construction .....        4,161          11.4%          2,992           17.4%
Real estate - other ............       15,136          41.5%          3,482           20.3%
Consumer .......................        6,431          17.6%          3,696          21.50%
Other loans ....................          136            .4%             32             .1%
                                      -------       -------         -------          ------
                                       36,464         100.0%         17,195          100.0%
                                                    =======
    Less:
    Allowance for
      loan losses ..............         (366)                         (170)
                                     --------                       -------
    Net loans ..................     $ 36,098                       $17,025
                                     ========                       =======
</TABLE>


The Company has intentionally avoided the growing national market in loans to
finance leveraged buy-outs, participating in no nationally syndicated leveraged
buy-out loans. Concurrently, it has avoided exposure to lesser developed
country ("LDC") debt, having no LDC loans in its portfolio.

The following table provides maturities of certain loan classifications at
December 31, 1998 and 1997 and an analysis of these loans maturing in over one
year.

                             SELECTED LOAN MATURITY

<TABLE>
<CAPTION>

                                                                                           RATE STRUCTURE FOR LOANS
                                             MATURITY                                       MATURING OVER ONE YEAR  
                                    -------------------------                            -----------------------------
                                                     OVER ONE
                                                        YEAR
                                        ONE           THROUGH      OVER                   PREDETERMINED    FLOATING OR
                                      YEAR OR           FIVE       FIVE                      INTEREST       ADJUSTABLE
                                       LESS             YEAR       YEAR       TOTAL            RATE            RATE
                                    ----------      -----------    ----       -----      ----------------  -----------
                                                                   (in Thousands)
<S>                                 <C>             <C>          <C>        <C>              <C>            <C>
Commercial, financial
   and agricultural.............    $   8,508       $   2,092    $   -0-   $  10,600        $   3,561     $    7,039
Real estate -
   construction.................        4,113              48        -0-       4,161            1,088          3,073
                                    ---------       ---------    -------   ---------       ----------     ----------

                                   $   12,621       $   2,140    $   -0-   $  14,761        $   4,649     $   10,112
                                   ==========       =========    =======   =========       ==========     ==========
</TABLE>


                                      -7-
<PAGE>   10

NONPERFORMING ASSETS

The following table presents information concerning outstanding balances of
nonperforming assets at December 31, 1998 and 1997.


<TABLE>
<CAPTION>

                                                                  DECEMBER 31, 1998                 December 31, 1997
                                                                  -----------------                 -----------------
                                                                    (in Thousands)                    (in Thousands)
<S>                                                               <C>                               <C>
Nonaccruing loans.................................                $              15                 $          -0-
Loans past due 90 days or more....................                                0                            -0-
Restructured loans................................                                0                            -0-
                                                                  -----------------                  -------------
Total nonperforming loans.........................                               15                            -0-
Nonaccruing securities............................                                0                            -0-
Other real estate.................................                                0                            -0-
                                                                  -----------------                 --------------
Total nonperforming assets........................                $              15                 $          -0-
                                                                  =================                 ==============

RATIOS:
 Loan loss allowance to
  total nonperforming assets......................                           24.40                           N/A
                                                                  ================
 Total nonperforming loans to total
  loans (net of unearned interest)................                          0.0004                           N/A
                                                                  ================
 Total nonperforming assets
  to total assets.................................                          0.0002                           N/A
                                                                  ================

</TABLE>

It is the general policy of the Company to stop accruing interest income and
place the recognition of interest on a cash basis when any commercial,
industrial or real estate loan is past due as to principal or interest and the
ultimate collection of either is in doubt. Accrual of interest income on
consumer installment loans is suspended when any payment of principal or
interest, or both, is more than ninety days delinquent. When a loan is placed
on a nonaccrual basis any interest previously accrued but not collected is
reversed against current income unless the collateral for the loan is
sufficient to cover the accrued interest or a guarantor assures payment of
interest.

There has been no significant impact on the Company's financial statements as a
result of the provisions of Statement of Financial Accounting Standards No.
114, Accounting by Creditors for Impairment of a Loan, or Statement of
Accounting Standards No. 118, Accounting by Creditors for Impairment of a Loan
Income Recognition and Disclosures.

PROVISION FOR LOAN LOSSES, NET CHARGE-OFFS AND ALLOWANCE FOR LOAN LOSSES

The provision for loan losses, which is charged to operations, is based on the
growth of the loan portfolio, the amount of net loan losses incurred and
management's estimation of potential future losses based on an evaluation of
the risk in the loan portfolio. Management believes that the $366,158 in the
allowance for loan losses at December 31, 1998 (1% of total net outstanding
loans at that date) was adequate to absorb known risks in the portfolio based
upon the Company's historical experience. No assurance can be given, however,
that increased loan volume, adverse economic conditions or other circumstances
will not result in increased losses in the Company's loan portfolio.


                                      -8-
<PAGE>   11


The following table sets forth certain information with respect to the
Company's loans, net of unearned income, and the allowance for loan losses for
the years ended December 31, 1998 and 1997.

                                     SUMMARY OF LOAN LOSS EXPERIENCE


<TABLE>
<CAPTION>

                                                                          1998                    1997
                                                                    ----------------         ---------------
                                                                     (in Thousands)           (in Thousands)
<S>                                                                 <C>                      <C>
Allowance for loan losses at beginning of year............              $    170                 $     -0-
                                                                         -------                 ---------
Total loans charged off - consumer loans..................                   (39)                      (1)
Recoveries on loans previously charged off................                    0                        -0-
                                                                        --------                 ---------
Net loans charged off.....................................                   (39)                      (1)
Provision for loan losses.................................                   235                      171
                                                                        --------                 ---------

Allowance for loan losses at end of period................              $    366                $     170
                                                                        ========                 ---------

Loans, net of unearned income, at end of period...........              $ 36,464                $  17,195
                                                                        ========                 =========

Average loans, net of unearned income,
  outstanding for the period..............................              $ 27,335                $   5,778
                                                                        ========                 =========

Ratios:
  Allowance at end of period to loans, net of
    unearned income.......................................                  1.00%                    0.99%
  Allowance at end of period to average loans,
    net of unearned income................................                  1.34%                    2.94%
  Net charge-offs to average loans, net of
    unearned income.......................................                   .14%                     .02%
  Net charge-offs to allowance at end of period...........                 10.66%                     .39%
  Recoveries to prior year charge-offs....................                  0.00%                    0.00%

</TABLE>


In assessing adequacy, management relies predominantly on its ongoing review of
the loan portfolio, which is undertaken both to ascertain whether there are
probable losses which must be charged off and to assess the risk
characteristics of the portfolio in the aggregate. This review takes into
consideration the judgments of the responsible lending officers and senior
management, and also those of bank regulatory agencies that review the loan
portfolio as part of the regular bank examination process.

In evaluating the allowance, management also considers the loan loss experience
of Gateway Bancshares, Inc. & Subsidiary, the amount of past due and
nonperforming loans, current and anticipated economic conditions, lender
requirements and other appropriate information.

                                      -9-
<PAGE>   12

Management allocated the reserve for loan losses to specific loan classes as
follows:

<TABLE>
<CAPTION>

                                           ALLOCATION OF ALLOWANCE FOR LOAN LOSSES

                                                            DECEMBER 31, 1998                          DECEMBER 31,1997
                                                            -----------------                          ----------------
                                                                          PERCENT                                     Percent
                                                         AMOUNT          OF TOTAL                 Amount              of Total
                                                         ------          --------                 ------              --------
                                                                    (in Thousands)                        (in Thousands)
<S>                                                  <C>               <C>                     <C>                  <C>
Domestic loans
 Commercial,
 financial and
  and agricultural..........................         $      110             30.0%              $      70                  41.2%
  Real estate - construction & other........                 66             18.1                      64                  37.6%
  Consumer..................................         $      190             51.9                      36                  21.2%
                                                     ----------        ---------               ---------            ----------
                                                     $      366            100.0%              $     170                 100.0%
                                                     ==========        =========               =========            ==========

</TABLE>


[CAPTION]
(1) The Company had no foreign loans.

DEPOSITS

The Company's primary source of funds is derived from its deposits. Continued
enhancement of existing products and emphasis upon better customer service
fuels the growth in the deposit base. Emphasis has been placed upon attracting
consumer deposits. It is the Company's intent to expand its consumer base in
order to continue to fund asset growth.

The average amounts of and the average rate paid on each of the following
categories of deposits for the years ended December 31, 1998 and 1997 are as
follows:


<TABLE>
<CAPTION>

                                                           YEARS ENDED DECEMBER 31,
                                         ---------------------------------------------------------
                                                  1998                                1997
                                         ----------------------              ---------------------
                                                               (in Thousands)
                                          Amount          Rate             Amount             Rate
                                          ------          ----             ------             ----
<S>                                      <C>             <C>                <C>               <C>
Noninterest-bearing demand deposits      $ 3,506          -0-%              $1,290             -0-%
                                         -------                            ------
Demand ............................        7,702         3.74                2,739            3.35
Savings ...........................        6,635         5.00                1,275            4.78
Time deposits .....................       26,957         6.11                4,478            6.16
                                         -------                            ------
    Total interest-bearing deposits       41,294         5.49                8,492            5.05
                                         -------                            ------

        Total average deposits ....      $44,800         5.06               $9,782            4.39
                                         =======                            ======
</TABLE>

                                      -10-
<PAGE>   13

The two categories of lowest cost deposits comprised the following percentages
of total deposits during 1998: average noninterest-bearing demand deposits -
7.8 percent; and average interest-bearing demand deposits - 17.2 percent. Of
total time deposits, approximately 53.0 percent were large denomination
certificates of deposit. The maturities of the time certificates of deposit and
other time deposits of $100,000 or more issued by the Company at December 31,
1998 are summarized in the table below.


                       MATURITIES OF LARGE TIME DEPOSITS

<TABLE>
<CAPTION>

                                                                                     TIME
                                                                                 CERTIFICATES
                                                                                  OF DEPOSIT
                                                                                --------------
                                                                                (IN THOUSANDS)
<S>                                                                             <C>
Three months or less                                                                $  4,373
Over three through six months                                                          6,861
Over six through twelve months                                                         2,405
Over twelve months                                                                       655
                                                                                    --------
   Total                                                                            $ 14,294
                                                                                    ========
</TABLE>



RETURN ON EQUITY AND ASSETS

The following table summarizes certain financial ratios for the Company for the
years ended December 31, 1998 and 1997.


<TABLE>
<CAPTION>
                                                                              YEAR ENDED DECEMBER 31,
                                                                         1998                       1997   
                                                                       ---------                 ---------
                                                                                 (in Thousands)
<S>                                                                    <C>                       <C>
Return on average assets                                                   0.44%                   (1.70)%
Return on average equity                                                   4.10%                   (4.33)%
Dividend payout ratio                                                      0.00%                     0.00%
Average equity to average assets ratio                                    10.78%                    39.15%
</TABLE>


                                      -11-
<PAGE>   14

                           SUPERVISION AND REGULATION

         The following discussion describes the material elements of the
regulatory framework that applies to banks and bank holding companies and
provides certain specific information related to the Company.

 GENERAL

         The Company is a bank holding company registered with the Board of
Governors of the Federal Reserve System under the Bank Holding Company Act of
1956, as currently in effect. As a result, the Company and any future non-bank
subsidiaries the Company establishes is and will be subject to the supervision,
examination, and reporting requirements of the Bank Holding Company Act and the
regulations of the Federal Reserve.

         The Bank Holding Company Act requires every bank holding company to
obtain the Federal Reserve's prior approval before: (1) it may acquire direct
or indirect ownership or control of any voting shares of any bank if, after the
acquisition, the bank holding company will directly or indirectly own or
control more than 5% of the bank's voting shares; (2) it or any of its non-bank
subsidiaries may acquire all or substantially all of the assets of any bank; or
(3) it may merge or consolidate with any other bank holding company.

         The Bank Holding Company Act also provides that the Federal Reserve
may not approve any transaction that would result in or tend to create a
monopoly, substantially lessen competition or otherwise function as a restraint
of trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community to be served. The Federal Reserve is also required to consider
the financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the community to
be served. The Federal Reserve's consideration of financial resources generally
focuses on capital adequacy, which is discussed below.

        The Company and any other bank holding company located in Georgia may
acquire a bank located in any other state, and any bank holding company located
outside of Georgia may acquire any Georgia-based bank, regardless of state law
to the contrary. In either case, certain deposit-percentage, aging
requirements, and other restrictions apply. National and state-chartered banks
may branch across state lines by acquiring banks in other states. By adopting
legislation prior to June 1, 1997, a state could elect either to "opt in" and
accelerate the date after which interstate branching would be permissible or
"opt out" and prohibit interstate branching altogether. The Georgia Interstate
Banking Act provides that interstate acquisitions by or of institutions located
in Georgia are permitted in states that also allow national interstate
acquisitions. The Georgia Interstate Branching Act permits Georgia-based banks
and bank holding companies owning or acquiring banks outside of Georgia and all
non-Georgia banks and bank holding companies owning or acquiring banks in
Georgia to merge any lawfully acquired bank into an interstate branch network.
The Georgia Interstate Branching Act also allows banks to establish new
branches throughout Georgia.

        The Bank Holding Company Act generally prohibits the Company from
engaging in activities other than banking or managing or controlling banks or
other permissible subsidiaries. The Bank Holding Company Act also prohibits the
Company from acquiring or keeping direct or indirect control of any company
engaged in any activities other than those activities that the Federal Reserve
determines to be closely related to banking or managing or controlling banks.
In determining whether a particular 



                                      -12-
<PAGE>   15


activity is permissible, the Federal Reserve must consider whether the activity
reasonably can be expected to produce benefits to the public, such as greater
convenience, increased competition, or gains in efficiency, that outweigh
possible adverse effects, such as undue concentration of resources, decreased
or unfair competition, conflicts of interest, or unsound banking practices. For
example, the Federal Reserve has determined that factoring accounts receivable,
acquiring or servicing loans, leasing personal property, conducting discount
securities brokerage activities, performing certain data processing services,
acting as agent or broker in selling credit life insurance and certain other
types of insurance in connection with credit transactions, and performing
certain insurance underwriting activities are permissible activities of bank
holding companies. The Bank Holding Company Act does not place territorial
limitations on permissible non-banking activities of bank holding companies.
Despite prior approval, the Federal Reserve may order a holding company or its
subsidiaries to terminate any activity or ownership or control of any
subsidiary when it has reasonable cause to believe that the holding company's
continued activity, ownership or control constitutes a serious risk to the
financial safety, soundness, or stability of any bank subsidiaries.

        The Bank's deposits are insured by the FDIC to the maximum extent
provided by law. The Bank is also be subject to numerous state and federal
statutes and regulations that affect its business, activities and operations,
and it is supervised and examined by one or more state or federal bank
regulatory agencies.

        The FDIC and the Georgia Department of Banking and Finance regularly
examine the operations of the Bank and have the authority to approve or
disapprove mergers, the establishment of branches, and similar corporate
actions. Both regulatory agencies also have the power to prevent the
continuance or development of unsafe or unsound banking practices or other
violations of law.

PAYMENT OF DIVIDENDS

        The Company is a legal entity separate and distinct from the Bank. The
principal source of the Company's cash flow, including cash flow to pay
dividends to its shareholders, is dividends that the Bank pays to the Company.
Statutory and regulatory limitations apply to the Bank's payment of dividends
to the Company as well as to the Company's payment of dividends to its
shareholders.

        If, in the opinion of the federal banking regulator, the Bank were
engaged in or about to engage in an unsafe or unsound practice, the federal
banking regulator could require, after notice and a hearing, that the Bank
cease and desist from its practice. The federal banking agencies have indicated
that paying dividends that deplete a depository institution's capital base to
an inadequate level would be an unsafe and unsound banking practice. Under the
Federal Deposit Insurance Corporation Improvement Act of 1991, a depository
institution may not pay any dividend if payment would cause it to become
undercapitalized or if it already is undercapitalized. Moreover, the federal
agencies have issued policy statements that provide that bank holding companies
and insured banks should generally only pay dividends out of current operating
earnings. See "--Prompt Corrective Action" below.

         Under the dividend restrictions imposed by federal and state law and
the conditions included in the Georgia Department of Banking and Finance's
approval of the Bank's Charter application, at December 31, 1998, the Bank
could not declare dividends to the Company.

        The payment of dividends by the Company and the Bank may also be
affected or limited by other factors, such as the requirement to maintain
adequate capital above regulatory guidelines.



                                      -13-
<PAGE>   16

CAPITAL ADEQUACY

         The Company and the Bank are required to comply with the capital
adequacy standards established by the Federal Reserve in the case of the
Company and the appropriate federal banking regulator in the case of the Bank.
The Federal Reserve has established two basic measures of capital adequacy for
bank holding companies -- a risk-based measure and a leverage measure. A bank
holding company must satisfy all applicable capital standards to be considered
in compliance.

         The risk-based capital standards are designed to make regulatory
capital requirements more sensitive to differences in risk profiles among banks
and bank holding companies, to account for off-balance-sheet exposure, and to
minimize disincentives for holding liquid assets. Assets and off-balance-sheet
items are assigned to broad risk categories, each with appropriate weights. The
resulting capital ratios represent capital as a percentage of total
risk-weighted assets and off-balance-sheet items.

         The minimum guideline for the ratio of total capital to risk-weighted
assets is 8%. At least one-half of total capital must comprise common stock,
minority interests in the equity accounts of consolidated subsidiaries,
noncumulative perpetual preferred stock, and a limited amount of cumulative
perpetual preferred stock, less goodwill and certain other intangible assets.
This portion of total capital is referred to as Tier 1 Capital. The remainder
may consist of subordinated debt, other preferred stock, and a limited amount
of loan loss reserves and is referred to as Tier 2 Capital. At December 31,
1998, the Company's consolidated ratio of total capital to risk-weighted assets
was 12.76% and its consolidated ratio of Tier 1 Capital to risk-weighted assets
was 12.05%.

         In addition, the Federal Reserve has established minimum leverage
ratio guidelines for bank holding companies. These guidelines provide for a
minimum ratio of Tier 1 Capital to average assets, less goodwill and certain
other intangible assets, of 3% for bank holding companies that meet the
specified criteria including having the highest regulatory rating. All other
bank holding companies generally are required to maintain a leverage ratio of
at least 3%, plus an additional cushion of 100 to 200 basis points. The
Company's leverage ratio at December 31, 1998 was 9.21%. The guidelines also
provide that bank holding companies experiencing internal growth, or making
acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels without significant reliance
on intangible assets. Furthermore, the Federal Reserve has indicated that it
will consider a bank holding company's Tier 1 Capital leverage ratio, after
deducting all intangibles, and other indicators of capital strength in
evaluating proposals for expansion or new activities.

         The Bank is subject to risk-based and leverage capital requirements
adopted by the FDIC, which are substantially similar to those adopted by the
Federal Reserve for bank holding companies. In addition, as a condition to
granting the Bank's charter, the Georgia Department of Banking and Finance
requires the Bank to maintain a Tier 1 Capital to assets ratio of at least 8%
for the first three years of the Bank's operation.

         Failure to meet capital guidelines could subject a bank to a variety
of enforcement remedies, including the issuance of a capital directive, the
termination of deposit insurance by the FDIC, a prohibition on the taking of
brokered deposits, and certain other restrictions on its business. As described
below, substantial additional restrictions can be imposed on FDIC-insured
depository institutions that fail to meet applicable capital requirements. See
"--Prompt Corrective Action."



                                      -14-
<PAGE>   17

SUPPORT OF SUBSIDIARY INSTITUTIONS

         Under Federal Reserve policy, the Company is expected to act as a
source of financial strength for, and to commit resources to support, the Bank.
This support may be required at times when, without this Federal Reserve
policy, the Company might not be inclined to provide it. In addition, any
capital loans by a bank holding company to its subsidiary bank will be repaid
only after its deposits and certain other indebtedness are repaid in full. In
the event of a bank holding company's bankruptcy, any commitment by the bank
holding company to a federal bank regulatory agency to maintain the capital of
a banking subsidiary will be assumed by the bankruptcy trustee and entitled to
a priority of payment.

PROMPT CORRECTIVE ACTION

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

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

         At December 31, 1998, the Bank's capital level placed it in the well
capitalized category.

FDIC INSURANCE ASSESSMENTS

         The FDIC has adopted a risk-based assessment system for insured
depository institutions that takes into account the risks attributable to
different categories and concentrations of assets and liabilities. The system
assigns an institution to one of three capital categories: (1) well
capitalized; (2) adequately capitalized; and (3) undercapitalized. These three
categories are substantially similar to the prompt corrective action categories
described above, with the "undercapitalized" category including institutions
that are undercapitalized, significantly undercapitalized, and critically
undercapitalized for prompt corrective action purposes. The FDIC also assigns
an institution to one of three supervisory subgroups within each capital group.
The supervisory subgroup to which an institution is assigned is based on a
supervisory evaluation that the institution's primary federal regulator
provides to the FDIC and information that the FDIC determines to be relevant to
the institution's financial condition and the risk posed to the deposit
insurance funds. The FDIC determines an institution's insurance assessment rate

                                      -15-

<PAGE>   18
based on the institution's capital category and supervisory category. Under the
risk-based assessment system, there are nine combinations of capital groups and
supervisory subgroups to which different assessment rates are applied.
Assessments range from 0 to 27 cents per $100 of deposits, depending on the
institution's capital group and supervisory subgroup.

         Effective January 1, 1997, the FDIC imposed assessments to help repay
the $780 million in annual interest payments on the $8 billion of Financing
Corporation bonds issued in the late 1980s as part of the government rescue of
the thrift industry. The FDIC will assess banks at a rate of 1.3 cents per $100
of deposits until December 31, 1999. Thereafter, it will add approximately 2.4
cents per $100 of deposits to each assessment.

         The FDIC may terminate an institution's deposit insurance if it finds
that the institution has engaged in unsafe and unsound practices, is in an
unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC.

PROPOSED LEGISLATION AND REGULATORY ACTION

         New regulations and statutes are regularly proposed that contain
wide-ranging proposals for altering the structures, regulations and competitive
relationships of the nation's financial institutions. We cannot predict whether
or in what form any proposed regulation or statute will be adopted or the
extent to which our business may be affected by any new regulation or statute.

ITEM 2. DESCRIPTION OF PROPERTIES

         The Company's corporate office and the Bank are located at 5102
Alabama Highway, Ringgold, Georgia. The property is leased by the Bank.

         On August 9, 1995, the organizers of the Company entered into a Ground
Lease For Lease (the "Lease Agreement") to lease vacant property located at
5102 Alabama Highway for 20 years with options to renew the lease for
additional 10 years thereafter. The maximum term is fifty years but may be
limited to forty years in certain events. The annual rental for the first three
years of the lease term is $20,480. Annual rent for the fourth and subsequent
years will be increased each year by the increase in the Consumer Price Index
as set forth in The Wall Street Journal or other nationally recognized
publication.

         A director of the Company is a co-owner of the property. In the
opinion of the organizers, the terms of this Lease Agreement are at least as
favorable to the Company as terms available from unrelated third parties.

         The Bank building is a two-story building consisting of 12,000 square
foot. The building contains six teller stations and four drive-through
stations.

         Other than normal real estate commercial lending activities of the
Bank, the Company generally does not invest in real estate, interests in real
estate, real estate mortgages, or securities of or interests in persons
primarily engaged in real estate activities.



                                      -16-
<PAGE>   19


ITEM 3. LEGAL PROCEEDINGS

         There are no material pending legal proceedings to which the Company
is a party or of which any of its properties are subject; nor are there
material proceedings known to the Company to be contemplated by any
governmental authority; nor are there material proceedings known to the
Company, pending or contemplated, in which any director, officer or affiliate
or any principal security holder of the Company or any associate of any of the
foregoing, is a party or has an interest adverse to the Company.

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

         None.

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The response to this Item is partially included in the Company's
Annual Report to Shareholders at page 37 and is incorporated herein by
reference.

         The Company has not sold any unregistered shares of its Common Stock,
no par value, during fiscal years 1998, 1997, or 1996.

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

         The response to this Item is included in the Company's Annual Report
to Shareholders under the heading, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," at pages 1 through 11, and is
incorporated herein by reference.

ITEM 7. FINANCIAL STATEMENTS

         The following financial statements are included in the Company's
Annual Report to Shareholders at pages 13 through 36, and are incorporated
herein by reference.

         Independent Auditors' Report

         Financial Statements

         Consolidated Balance Sheets dated as of December 31, 1998 and 1997

         Consolidated Statements of Income for the years ended December 31,
         1998 and 1997

         Consolidated Statements of Stockholders' Equity for the years ended
         December 31, 1998, and 1997




                                      -17-
<PAGE>   20


         Consolidated Statements of Cash Flows for the years ended December 31,
         1998 and 1997

         Notes to Consolidated Financial Statements

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

        Not Applicable.

                                    PART III

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

         The responses to this Item are included in the Company's Proxy
Statement for the Annual Meeting of Shareholders to be held April 15, 1999,
under the following headings, and are incorporated herein by reference.

         "Proposal One:  Election of Directors - Director Nominees," at page 5;

         "Executive Officers," at page 6;

         "Security Ownership of Certain Beneficial Owners and Management," at
         pages 2 through 4; and

          "Section 16(a) Beneficial Ownership Reporting Compliance," at page 2.

ITEM 10. EXECUTIVE COMPENSATION

         The responses to this Item are included in the Company's Proxy
Statement for the Annual Meeting of Shareholders to be held April 15, 1999,
under the heading, "Compensation of Executive Officers and Directors," at page
7, and are incorporated herein by reference.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The responses to this Item are included in the Company's Proxy
Statement for the Annual Meeting of Shareholders to be held April 15, 1999,
under the headings, "Security Ownership of Certain Beneficial Owners," at pages
2 through 4, and are incorporated herein by reference.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The responses to this Item are included in the Company's Proxy
Statement for the Annual Meeting of Shareholders to be held April 29, 1999,
under the headings, "Certain Relationships and Related Transactions," at pages
7 through 8, and "Compensation of Executive Officers and Directors," at page 7,
and are incorporated herein by reference.



                                     -18-
<PAGE>   21

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


<TABLE>
<CAPTION>
         (a)      Exhibits

                  Exhibit
                  Number                    Exhibit
                  ------                    -------
                  <S>               <C>
                  3.1               Articles of Incorporation.(1)

                  3.2               Bylaws.(1)

                  4.1               Instruments Defining the Rights of Security Holders.  See Articles of Incorporation at Exhibit
                                    3.1 hereto and Bylaws at Exhibit 3.2 hereto.

                  10.1              Ground Lease Agreement by and between Gateway Bancshares, Inc. and Ringgold Mining and
                                    Manufacturing Company, dated as of May 1, 1996.(2)

                  10.3              Gateway Bancshares, Inc. 1999 Stock Option Plan.(3)

                  13.1              Gateway Bancshares, Inc. 1998 Annual Report to Shareholders. Except with respect to those
                                    portions specifically incorporated by reference into this Report, the Company's 1998 Annual
                                    Report to Shareholders is not deemed to be filed as part of this Report.

                  22.1              Subsidiaries of Gateway Bancshares, Inc.(4)

                  24.1              Power of Attorney (appears on the signature pages to this Annual 
                                    Report on 10-KSB).

                  27.1              Financial Data Schedule (for SEC use only).

         (b)      Reports on Form 8-K filed in the fourth quarter of 1998:   None.
</TABLE>

----------------------------
(1) Incorporated herein by reference to exhibit of same number in the Company's
    Registration Statement on Form SB-2, Registration No. 33-80855, filed
    December 20, 1995.

(2) Incorporated herein by reference to exhibit of same number in the Company's
    Quarterly Report on Form 10-QSB for the quarter ended September 30, 1996.

(3) Incorporated herein by reference to Appendix A of the Company's Proxy
    Statement for the Meeting of Shareholders to be held on April 15, 1999.
    filed under cover of Schedule 14A.

(4) Incorporated herein by reference to exhibit of same number in the Company's
    Annual Report on Form 10-KSB for the year ended December 31, 1997.


                                      -19-
<PAGE>   22



                                   SIGNATURES

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

                          GATEWAY BANCSHARES, INC.

                          By:      /s/ Robert G. Peck
                             --------------------------------
                                       Robert G. Peck
                                       President and Chief Executive Officer

                          Date:    March 18, 1999

                          

                               POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears on the
signature page to this Report constitutes and appoints Robert G. Peck and Harle
B. Green, and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place, and stead, in any and all capacities, to sign any and all amendments to
this Report, and to file the same, with all exhibits hereto, and other
documents in connection herewith with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.

Pursuant to the requirements of 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 and on the dates indicated.


<TABLE>
<CAPTION>


Signature                                   Title                            Date
---------                                   -----                            ----
<S>                                       <C>                                <C>
/s/ Jack Joseph Babb                      Director                           March 18, 1999
------------------------------------
Jack Joseph Babb

/s/ William H.H. Clark                    Director                           March 18, 1999
------------------------------------
William H.H. Clark

</TABLE>


                                      -20-
<PAGE>   23



<TABLE>
<CAPTION>

<S>                                       <C>                                <C>
                                          Director
------------------------------------
Patricia Yvonne Cochran

/s/ Jeannette Wilson Dupree               Director                           March 18, 1999
------------------------------------
Jeannette Wilson Dupree

/s/ Harle B. Green                        Director, Chief Financial          March 18, 1999
------------------------------------      Officer (Principal Financial
Harle B. Green                            And Accounting Officer)
                                          
                                          Director
------------------------------------
Walter Lee Jackson

                                          
------------------------------------
Ernest Kresch                             Director

/s/ Robert G. Peck                        Director, President                March 18, 1999
------------------------------------      Chief Executive Officer
Robert G. Peck                            

/s/ James Arthell Gray, Sr.               Director                           March 18, 1999
------------------------------------
James Arthell Gray, Sr.

</TABLE>


                                     -21-
<PAGE>   24




                                 EXHIBIT INDEX

<TABLE>
<CAPTION>

                Exhibit
                Number                             Exhibit
                ------                             -------
                <S>                         <C>
                  3.1                       Articles of Incorporation.(1)

                  3.2                       Bylaws.(1)

                  4.1                       Instruments Defining the Rights of Security Holders.  See Articles of
                                            Incorporation at Exhibit 3.1 hereto and Bylaws at Exhibit 3.2 hereto.

                  10.1                      Ground Lease Agreement by and between Gateway Bancshares, Inc. and Ringgold 
                                            Mining and Manufacturing Company, dated as of May 1, 1996.(2)

                  10.3                      Gateway Bancshares, Inc. 1999 Stock Option Plan.(3)

                  13.1                      Gateway Bancshares, Inc. 1998 Annual Report to Shareholders. Except with 
                                            respect to those portions specifically incorporated by reference into this 
                                            Report, the Company's 1998 Annual Report to Shareholders is not deemed to be
                                            filed as part of this Report.

                  22.1                      Subsidiaries of Gateway Bancshares, Inc.(4)

                  24.1                      Power of Attorney (appears on the signature pages to this Annual Report on 10-KSB).

                  27.1                      Financial Data Schedule (for SEC use only)
</TABLE>


--------
(1) Incorporated herein by reference to exhibit of same number in the Company's
Registration Statement on Form SB-2, Registration No. 33-80855, filed December
20, 1995.

(2) Incorporated herein by reference to exhibit of same number in the Company's
Quarterly Report on Form 10-QSB for the quarter ended September 30, 1996.

(3) Incorporated herein by reference to Appendix A of the Company's Proxy
Statement for the Meeting of Shareholders to be held on April 15, 1999, filed
under cover of Schedule 14A.

(4) Incorporated herein by reference to exhibit of same number in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1997.


                                      -22-