GATEWAY  BANCSHARES,  INC.

                                FINANCIAL  REVIEW

                                      2003


<PAGE>
    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                                   OPERATIONS

The  Annual  Report,  including  the  Management's Discussion and Analysis which
follows,  contains  forward-looking  statements  in  addition  to  historical
information,  including,  but  not  limited to statements regarding Management's
beliefs,  current  expectations,  estimates  and projections about the financial
services  industry,  the economy, and about the Company and the Bank in general.
Such  forward-looking statements are subject to certain factors that could cause
actual  results  to  differ  materially  from  historical results or anticipated
events,  trends  or  results.  These factors include, but are not limited to (i)
increased  competition with other financial institutions, (ii) lack of sustained
growth  in  the  economy in Catoosa County, (iii) rapid fluctuations in interest
rates,  (iv) the inability of the Bank to maintain regulatory capital standards,
and  (v) changes in the legislative and regulatory environment.  These and other
factors  affecting  the  Company's  future  performance  are further detailed in
publicly  available  reports  filed  from  time  to time by the Company with the
Securities  and Exchange Commission, such as the Company's Annual Report on Form
10-KSB  for  the  year  ended  December  31,  2003  (the  2003  10-KSB).

The  purpose  of  the following discussion is to address information relating to
the financial condition and results of operations of the Company that may not be
readily  apparent  from  a  review  of the consolidated financial statements and
notes thereto, which are included in this Annual Report.  This discussion should
be  read  in conjunction with information provided in the Company's consolidated
financial  statements  and  accompanying  footnotes;  and  with  the statistical
information appearing in the 2003 10-KSB under the caption "Selected Statistical
Information."  Unless  otherwise noted, the discussion of net interest income in
this  financial  review is presented on a taxable equivalent basis to facilitate
performance  comparisons  among  various  taxable  and  tax-exempt  assets.

SUMMARY

Substantially  all  of  the  operations  of  the  Company  are  conducted by its
wholly-owned  subsidiary,  Gateway  Bank  &  Trust (the Bank).  Accordingly, the
following  discussion  relates  primarily  to the Bank.  The Company's principal
market  areas  are located in the Catoosa County, Georgia and surrounding areas.
Management  believes that the economy of the area in which the Company serves is
healthy  and  expanding,  but  not  at  a  pace  that  threatens  stability.

Jobs  are  created  in  significant  proportion in the manufacture of tufted and
durable  goods,  as  well  as  in retail and service sectors.  Catoosa County is
centrally  located  for  employment  opportunities  being  situated  on the I-75
corridor  between  Chattanooga,  TN  and Dalton, GA.  The majority of the area's
residents  work  in  Tennessee  while  a smaller number are employed in adjacent
counties.  In  the Company's markets, population growth over the last five years
has  surpassed the rate for the state.  Management believes the current economic
prospects  in the Company's markets are good, and the Company attempts to assist
those  prospects  by  returning the deposits of its customers to the communities
from  which  they  come  in  the  form  of  loans.

EARNINGS

The  Company's  net  income  of  $1,571,773  for  2003 represents an increase of
$317,079  from  the Company's net income in 2002 of $1,254,694.  The increase in
net  income  resulted  primarily from net loan growth, an increased net interest
margin,  and  an  increase  in deposit service charges and mortgage loan fees in
2003.  Earnings  per  share  was  $2.35  in  2003  compared  with $1.84 in 2002.


                                     Page 1
<PAGE>
RESULTS  OF  OPERATIONS

NET  INTEREST  INCOME

Net  interest  income  is  the  principal  source  of  a financial institution's
earnings stream and represents the difference or spread between interest and fee
income  generated  from earning assets and the interest expense paid on deposits
and  borrowed  funds.  Fluctuations  in interest rates as well as volume and mix
changes in earning assets and interest-bearing liabilities materially impact net
interest  income.  (All  discussions in this section assume a taxable equivalent
basis  unless  otherwise noted.)  Net interest income was $5,398,695 in 2003, as
compared  to  $4,650,824  in 2002, representing an increase of $747,871, or 16%.
This  increase was caused primarily by (1) a slightly lower cost of funds during
the  year  and (2) continued growth in the Bank's loan portfolio, which provides
the  highest  rate  of  interest  income.  Interest rates were relatively stable
during 2003 and 2002, allowing the Bank to maintain higher net interest margins.
During  2003  the  prime interest rate dropped from 4.25% to 4.00%.  During 2002
the  prime  interest  rate  dropped  from 4.75% to 4.25%.  At December 31, 2003,
$70,440,299  (59.4%)  of  the  Bank's  loans  had  variable  interest rates that
adjusted  with  changes  in the prime interest rate.  Interest and fees on loans
increased from $6,398,871 in 2002 to $7,361,630 in 2003 (an increase of 15.05%).

Interest earned on securities decreased $268,394 (23.3%) from $1,151,538 in 2002
to  $883,144  in  2003.  The  decrease is due primarily to a decline in interest
rates  on  securities.  Total  securities  at year-end increased $4,318,531 from
2002  to  2003.  During 2003 a smaller portion of the Bank's earning assets were
in  federal  funds  sold  and  securities  than  in  2002.

The  trend  in  net  interest income is also evaluated in terms of average rates
using  the  net  interest margin and the interest rate spread.  The net interest
margin,  or  the  net  yield  on  earning  assets, is computed by dividing fully
taxable  equivalent  net  interest income by average earning assets.  This ratio
represents  the difference between the average yield returned on average earning
assets and the average rate paid for funds used to support those earning assets,
including  both  interest-bearing  and  noninterest-bearing  sources.  The  net
interest  margin for 2003 was 4.03% compared with a net interest margin of 4.12%
in  2002.  This  marginal decrease was caused by reductions in interest rates on
earning  assets  at  a slightly faster pace than reductions in interest rates on
interest  bearing  liabilities.

The  interest  rate  spread measures the difference between the average yield on
earning  assets  and the average rate paid on interest-bearing sources of funds.
The  interest rate spread eliminates the impact of noninterest-bearing funds and
gives a more direct perspective to the effect of market interest rate movements.
The  net interest spread for 2003 was 3.75% compared to a net interest spread of
3.71%  in  2002.

The  following  tabulation  presents  certain  net  interest income data without
modification  for  assumed  tax  equivalency:

                                                      2003   2002
                                                      -----  ----

Rate earned on earning assets                         6.10%  6.65%
Rate paid on borrowed funds                           2.35%  2.94%
Interest rate spread                                  3.75%  3.71%
Net yield on earnings assets                          4.03%  4.12%


                                     Page 2
<PAGE>
INTEREST  EXPENSE

Total  interest  expense  decreased  $62,683  (2.1%)  from $2,945,617 in 2002 to
$2,882,934  in  2003.  This decrease resulted from a moderate decline in 2003 of
rates  offered  on  interest-bearing  deposits.  Interest  expense  on
interest-bearing  deposits  decreased  from  $2,752,061 in 2002 to $2,710,415 in
2003.

NONINTEREST  INCOME

Noninterest  income  for  2003  and  2002  totaled  $2,042,690  and  $1,481,134,
respectively.  These  amounts  are  primarily  from  service  charges on deposit
accounts,  mortgage loan fees and fees on services to customers. The increase in
noninterest  income  was  caused  by  significantly  greater  gains  on sales of
securities, an increase in the Bank's fee structure, and an increased demand for
mortgage  loans  due  to  lower  interest  rates.

                                              2003       2002
                                           ----------  ----------

Service charge on deposits                 $  973,898  $  750,705
Mortgage loan fees                            517,710     404,345
Investment securities gains                   225,705      23,216
Other                                         325,377     302,868
                                           ----------  ----------

                                           $2,042,690  $1,481,134
                                           ==========  ==========

NONINTEREST  EXPENSES

Noninterest  expenses  totaled  $4,411,365  in  2003  and  $3,803,535  in  2002.
Salaries and benefits increased $337,785 (15.1%) to $2,570,914 due to the hiring
of  additional  staff  and  increased  insurance  premiums.  The data processing
expense  increase  of  $91,011  (28.7%)  and  printing  and supplies increase of
$42,254  (26.0%)  are  directly  related  to  the  growth  in customer accounts.
Advertising  and  marketing  expense  increased  $30,474  (66.9%)  due  to a new
marketing  plan  implemented  in  2003.

                                              2003       2002
                                          ----------  ----------
Salaries and employee benefits            $2,570,914  $2,233,129
Occupancy expenses                           201,203     186,817
Advertising and marketing                     76,010      45,536
Data processing                              408,664     317,653
Furniture and equipment expense              190,063     184,873
Postage, freight and express                 116,408      89,563
Printing and supplies                        204,614     162,360
Professional and regulatory fees             205,772     194,434
Other                                        437,717     387,170
                                          ----------  ----------

                                          $4,411,365  $3,803,535
                                          ==========  ==========

INCOME  TAXES

The  Company  attempts  to  maximize its net income through active tax planning.
The  Company  is  subject  to  federal  and state income taxes.  A more detailed
explanation  of  income  tax  expense  is  included in the accompanying Notes to
Consolidated  Financial  Statements.


                                     Page 3
<PAGE>
FINANCIAL  CONDITION

EARNING  ASSETS

Average  earning  assets  in  2003  were  approximately $135,769,000 or 94.1% of
average  total  assets compared to $114,172,000 or 94.5% of average total assets
in 2002.  The mix of average earning assets comprised the following percentages:

                                                   2003    2002
                                                  ------  ------

Federal funds sold                                  1.8%    2.5%
Securities                                         22.2%   25.2%
Loans                                              76.0%   72.3%
                                                  ------  ------

                                                  100.0%  100.0%
                                                  ======  ======

The  mix  of  average  earning  assets reflects management's attempt to maximize
interest  income  while  maintaining  acceptable  levels  of  risk.

LOANS

Loans  made  up the largest component of the Bank's earning assets.  At December
31,  2003,  the  Bank's  total  gross  loans  were  $118,557,379  as compared to
$93,897,207 at the end of 2002, representing an increase of $24,660,172 (26.3%).
The  Bank's  increase  in  average loan balances during the year was $20,585,000
(24.9%),  while  the growth in the Bank's average earning assets was $21,597,000
(18.9%).  As  a  result,  loans  were  a  greater  portion of the Bank's average
earning  assets.  In 2003 average net loans represented 76.0% of average earning
assets  and  71.5% of average total assets, compared to 72.3% of average earning
assets and 68.3% of average total assets in 2002.  These percentages result from
loan  growth outpacing growth in customer deposits.  The ratio of total loans to
total  deposits  increased from 77% at December 31, 2002, to 80% at December 31,
2003.

The  Bank has no loans to finance leveraged buy-outs.  In addition, the Bank has
avoided  exposure  to lesser developed countries (LDC) debt, having no LDC loans
in  its  portfolio.

RELATED  PARTY  TRANSACTIONS

In  the  normal course of business, the Bank makes loans to directors, executive
officers and principal shareholders of the Bank on substantially the same terms,
including  interest  rates  and  collateral, as those prevailing at the time for
comparable  transactions  with  other  borrowers.  Loans to directors, executive
officers,  and  principal  shareholders  totaled  approximately  $3,763,000  at
December  31,  2003.

OFF-BALANCE  SHEET  ARRANGEMENTS

The  Bank is a party to financial instruments with off-balance-sheet risk in the
normal  course  of business to meet the financing needs of its customers.  These
financial  instruments include standby letters of credit and various commitments
to  extend  credit.  At  December 31, 2003, commitments under standby letters of
credit  and  undisbursed  loan  commitments  aggregated $24,948,000.  The Bank's
credit  exposure  for  these  financial  instruments  is  represented  by  their
contractual  amounts.  The  Bank  does  not  anticipate any material losses as a
result  of  the commitments under standby letters of credit and undisbursed loan
commitments.


                                     Page 4
<PAGE>
NONPERFORMING  ASSETS

The  following  table  presents  information  concerning outstanding balances of
nonperforming assets at December 31, 2003 and 2002 (in thousands):

<TABLE>
<CAPTION>
                                                      2003     2002
                                                    -------  -------
<S>                                                 <C>      <C>

Nonaccruing loans                                   $   148  $   111

Loans past due 90 days or more                          210      185

Restructured loans                                        -        -
                                                    -------  -------

Total nonperforming loans                               358      296

Other real estate                                        86      212
                                                    -------  -------

Total nonperforming assets                          $   444  $   508
                                                    =======  =======

Ratios:

Loan loss allowance to total nonperforming assets    3.7500   2.5413
                                                    =======  =======

Total nonperforming loans to total loans
  (net of unearned interest)                         0.0030   0.0032
                                                    =======  =======

Total nonperforming assets to total assets           0.0026   0.0036
                                                    =======  =======
</TABLE>

The  Company  stops  accruing  interest income and recognizes 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 Financial
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 $1,664,578 in the
allowance  for  loan  losses  at  December 31, 2003 (1.40% 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.

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,  2003  and  2002.


                                     Page 5
<PAGE>
<TABLE>
<CAPTION>
                           SUMMARY OF LOAN LOSS EXPERIENCE

                                                                        2003       2002
                                                                      ---------  --------
                                                                    (amounts in thousands)
<S>                                                                   <C>        <C>

Balance, beginning of period                                          $  1,291   $   996

Total loans charged off                                                   (265)     (149)
Recoveries on loans previously charged off                                  15         8
                                                                      ---------  --------

Net loans charged off                                                     (250)     (141)
                                                                      ---------  --------

Provision for loan losses                                                  624       436
                                                                      ---------  --------

Balance, end of period                                                $  1,665   $ 1,291
                                                                      =========  ========

Loans, net of unearned income, at end of period                       $118,557   $93,897
                                                                      =========  ========

Average loans, net of unearned income                                 $103,183   $82,598
                                                                      =========  ========

Ratios:

Allowance at end of period to loans, net of unearned income               1.40%     1.37%

Allowance at end of period to average loans, net of unearned income       1.61%     1.56%

Net charge-offs to average loans, net of unearned income                  0.24%     0.17%

Net charge-offs to allowance at end of period                            15.02%    10.92%

Recoveries to prior year charge-offs                                     10.07%     1.91%
</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 that 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  the  Company  and  the Bank, the amount of past due and nonperforming loans,
current  and  anticipated  economic  conditions,  lender  requirements and other
appropriate  information.

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

<TABLE>
<CAPTION>
                     ALLOCATION OF ALLOWANCE FOR LOAN LOSSES

                                        December 31, 2003   December 31, 2002
                                        ------------------  ------------------
                                                  Percent             Percent
                                        Amount   of Total   Amount   of Total
                                        -------  ---------  -------  ---------
<S>                                     <C>      <C>        <C>      <C>

Domestic loans (1):
  Commercial and industrial             $ 1,065      64.0%  $   822      63.7%
  Real estate - construction and other      267      16.0%      196      15.2%
  Consumer                                  333      20.0%      273      21.1%
                                        -------  ---------  -------  ---------

                                        $ 1,665     100.0%  $ 1,291     100.0%
                                        =======  =========  =======  =========
<FN>
(1)  The Company had no foreign loans.
</TABLE>


                                     Page 6
<PAGE>
CRITICAL  ACCOUNTING  POLICIES

Management  has  determined  that  the accounting for the allowance for loan and
lease  losses  is a critical accounting policy with respect to the determination
of  financial  condition  and  reporting  of  results  of  operations.

Management  determines the required allowances by classifying loans according to
credit  quality and collateral security and applying historical loss percentages
to  each  category.  Additionally,  as necessary, management determines specific
allowances  related  to  impaired  loans  based on the present value of expected
future  cash flows discounted at the loan's effective interest rate, or the fair
value  of the collateral if the loan is collateral dependent. A key component in
the  accounting  policy  is  management's  ability to timely identify changes in
credit  quality,  which  may  impact  the  Company's  financial  results.

Management  recognizes  that  in making loans, 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  quality of the security for the loan.
Management's  policy  is to maintain an appropriate allowance for estimated loan
and  lease  losses  on  the  portfolio  as  a whole. The allowances are based on
estimates  of  the  historical  loan  loss  experience,  evaluation  of economic
conditions  and  regular  periodic  reviews of the Bank's loan portfolio by both
internal  personnel  and  a  third  party review firm. The Bank's loan portfolio
consists  mostly  of  commercial  and  real estate loans to companies in various
industries,  whose  financial  performance  may  be  impacted differently by the
local,  regional  or  national  economies  and  stage  of  the  economic  cycle.
Management  believes  that  the  effects of any reasonably likely changes in the
economy  would  be  limited  somewhat  due  to  the  diversification of the loan
portfolio  and  the Bank's normal collateral requirements for such loans.  While
management  uses  available information to recognize losses on loans and leases,
future  adjustments  in  the  allowance  may  be  necessary  based on changes in
economic  conditions,  which  could have a significant detrimental impact to the
Company's  financial  condition  and results of operation. Additionally, various
regulatory  agencies,  as  an  integral  part  of  their  examination  process,
periodically  review  the  Company's  allowance for loans and lease losses. Such
agencies  may  require  the  Company to recognize additions to the allowance for
loan  and  lease  losses  based on their judgment about information available to
them  at  the  time  of  their  examination.

SECURITIES  AND  FEDERAL  FUNDS  SOLD

The  Company  classifies all of its securities as available for sale, reflecting
management's  intent  to  hold  these securities for the foreseeable future.  At
December  31,  2003, securities available for sale were $33,692,972, compared to
$29,374,441  at  year-end  2002.

The  purchase of the Federal Home Loan Bank stock is required in order to become
a  member  of  the  Federal Home Loan Bank and participate in available lines of
credit.  These  investments  were  $298,200 at December 31, 2003 and $260,000 at
December  31,  2002.

The  composition  of  the  Company's securities portfolio reflects the Company's
investment strategy of maximizing portfolio yields subject to risk and liquidity
considerations.  The primary objectives of the Company's investment strategy are
to  maintain  an  appropriate level of liquidity and provide a tool to assist in
controlling  the  Company's  interest  rate  position  while  at  the  same time
producing adequate levels of interest income.  Management of the maturity of the
portfolio  is  necessary to provide liquidity and to control interest rate risk.
During  2003  gross  investment securities sales were approximately $10,896,000,
representing  36.1%  of  the  average  portfolio  for  the  year.  Gains


                                     Page 7
<PAGE>
associated  with  the sales were $231,027, while losses totaled $5,322.  The net
gains  of  $225,705 represent 11% of noninterest income.  Gross unrealized gains
in  the portfolio were $172,275, and unrealized losses were $235,439 at year-end
2003.  During  2002  gross  investment  securities  sales  were  approximately
$2,743,000,  representing  9.5%  of  the  average portfolio for the year.  Gains
associated  with  the 2002 sales were $24,750, while losses totaled $1,534.  The
net  gains  of  $23,216  represent 1.6% of noninterest income.  Gross unrealized
gains  in  the  portfolio  were  $511,371, and unrealized losses were $11,080 at
year-end  2002.

Mortgaged-backed  securities  have  varying  degrees  of  risk  of impairment of
principal,  as  opposed to U.S. Treasury and U.S. government agency obligations,
which  are  considered  to  contain  virtually  no  default or prepayment risks.
Impairment  risk  is  primarily  associated  with  accelerated  prepayments,
particularly  with  respect  to  longer  maturities  purchased  at a significant
premium  and  interest-only  strip  securities.  The  Bank's  purchase  of
mortgage-backed  securities  during  2003  did not include securities with these
characteristics.  The recoverability of the Bank's investment in mortgage-backed
securities  is  reviewed periodically, and if necessary, appropriate adjustments
would  be  made  to  income  for  impaired  values.

Management  maintains  federal  funds  sold as a tool in managing its daily cash
needs.  Federal  funds  sold  decreased  from  $7,450,000  at  year-end  2002 to
$4,340,000  at  year-end  2003.  Average  federal  funds  sold  for  2003  was
approximately  $2,399,000  or  1.8%  of  average  earning  assets, compared with
approximately  $2,838,000  or  2.5%  of  average  earning assets for 2002.  This
decline  resulted  from  maintaining  a  higher percentage of the Bank's earning
assets  in  loans  in  2003.

DEPOSITS

The  Bank's  primary source of funds is derived from deposits of Bank customers.
Average  deposits  increased  18.9%  from  approximately $105,958,000 in 2002 to
approximately  $126,014,000  in 2003.  At December 31, 2003, total deposits were
$148,081,102,  of  which  $135,772,401  (91.7%)  were  interest-bearing  and
$12,308,701  (8.3%)  were noninterest-bearing.  At year-end 2002, total deposits
were  $121,990,998,  of  which  $114,174,960  (93.6%)  were interest-bearing and
$7,816,038  (6.4%) were noninterest-bearing.  Management has identified deposits
of  approximately $14,093,000 at December 31, 2003 that are considered volatile.
These  deposits  consist  of  property  tax deposits by Catoosa County that were
withdrawn  in  early 2004.  Management continues to develop its deposit products
and  emphasizes  high-quality  customer  service  to  grow  the  deposit  base.

SHAREHOLDERS'  EQUITY

Shareholders'  equity  increased $763,065 from December 31, 2002 to December 31,
2003.  This  increase  is  due primarily to net earnings of $1,571,773 for 2003.
Activity  in  the  stock  option  plan  also  increased  stockholders' equity by
$254,144.  The  equity  adjustment  for unrealized gains on securities available
for  sale  decreased  stockholders'  equity  by $349,342, net of deferred taxes.

On  April  30,  2003,  the  Company initiated a tender offer to repurchase up to
110,000  shares  of its outstanding common stock at a price of $17.72 per share.
The  tender  offer  expired  on  May  30, 2003.  A total of 40,250 shares of the
Company's common stock were repurchased during 2003 at a total cost of $713,510,
decreasing  stockholders'  equity.


                                     Page 8
<PAGE>
LIQUIDITY  AND  CAPITAL  RESOURCES

LIQUIDITY  MANAGEMENT

Liquidity  is defined as the ability of a company to convert assets into cash or
cash  equivalents  without  significant  loss.  Liquidity  management  involves
maintaining  the Company's ability to meet the day-to-day cash flow requirements
of  the  Banks' customers, whether they are depositors wishing to withdraw funds
or  borrowers  requiring  funds  to  meet  their  credit  needs.  Without proper
liquidity  management,  the  Company  would  not  be able to perform the primary
function  of  a financial intermediary and would, therefore, not be able to meet
the  production  and  growth  needs  of  the  communities  it  serves.

The  primary function of assets and liabilities management is not only to assure
adequate  liquidity  in  order for the Company to meet the needs of its customer
base,  but  to maintain an appropriate balance between interest-sensitive assets
and  interest-sensitive  liabilities  so  that  the  Company  can  also meet the
investment  requirements  of  its shareholders.  Daily monitoring of the sources
and  uses  of  funds  is  necessary to maintain an acceptable cash position that
meets  both requirements.  In a banking environment, both assets and liabilities
are  considered  sources of liquidity funding and both are, therefore, monitored
on  a  daily  basis.

The asset portion of the balance sheet provides liquidity primarily through loan
principal  repayments or sales of securities.  Construction loans and commercial
and  industrial  loans  that  mature  in  one year or less equaled approximately
$34,418,000  or  29.0%  of  the  total  loan portfolio at December 31, 2003, and
securities  maturing  in  one  year  or  less equaled $5,233,057 or 15.5% of the
portfolio.  Other  sources  of  liquidity include short-term investments such as
federal  funds  sold.

The  liability  portion  of the balance sheet provides liquidity through various
customers' interest-bearing and noninterest-bearing deposit accounts.  Funds are
also available through the purchase of federal funds from other commercial banks
from  an  available line of up to $8,000,000.  Liquidity management involves the
daily  monitoring  of  the  sources  and uses of funds to maintain an acceptable
Company  cash  position.

In  an  effort to maintain and improve its liquidity position, the Bank became a
member  of  the  Federal  Home Loan Bank of Atlanta in 1998.  As a member of the
Federal  Home  Loan  Bank,  the  Bank  is  able to improve its ability to manage
liquidity  and  reduce  interest  rate  risk by having a funding source to match
longer  term  loans.  The  Bank  has received a credit line of up to $8,900,000.
The  Bank  has  drawn $2,500,000 from the available credit with the Federal Home
Loan  Bank.  See  the  Notes  to  Consolidated  Financial  Statements herein for
additional  information.

CAPITAL  RESOURCES

A strong capital position is vital to the continued profitability of the Company
because  it  promotes  depositor  and  investor  confidence and provides a solid
foundation  for future growth of the organization.  The Company has provided the
majority  of  its capital requirements through the proceeds of its initial stock
offering  in  1997  and  the  retention  of  earnings.  In addition, the Company
injected  $1,750,000  of  additional  capital  in  the  Bank  in  December 2003.


                                     Page 9
<PAGE>
Bank regulatory authorities are placing increased emphasis on the maintenance of
adequate  capital.  In  1990,  risk-based capital requirements became effective.
The  guidelines  take into consideration risk factors, as defined by regulators,
associated with various categories of assets, both on and off the balance sheet.
Under  the guidelines, capital strength is measured in two tiers, which are used
in  conjunction  with  risk-adjusted  assets to determine the risk-based capital
ratios.  The Bank's Tier I capital, which consists of common equity, amounted to
$13,761,000  at  December  31,  2003.  Tier  II  capital  components  include
supplemental  capital  components such as the allowance for loan losses.  Tier I
capital  plus  the Tier II capital components is referred to as Total Risk-based
capital  and  was  $15,335,000  at  year-end  2003.  The  percentage  ratios, as
calculated  under  the  guidelines  were  10.9%  and  12.2% for Tier I and Total
Risk-based  capital,  respectively,  at  year-end  2003.  Both  levels currently
exceed  the  minimum  ratios  of  4%  and  8%,  respectively.

Another  important  indicator of capital adequacy in the banking industry is the
leverage  ratio.  The  leverage  ratio is defined as the ratio the Bank's Tier I
capital  minus specific intangible assets to total average assets minus specific
intangible assets.  The Bank's leverage ratios as of December 31, 2003, exceeded
the  regulatory  minimum  requirements which are generally 3% plus an additional
cushion  of  at  least 100-200 basis points depending on risk profiles and other
factors.

The table below illustrates the Bank's regulatory capital ratios at December 31,
2003  and  2002,  under  the  year-end  2003  requirements.

<TABLE>
<CAPTION>
                                                                      2003       2002
                                                                    ---------  ---------
<S>                                                                 <C>        <C>

Tier I Capital                                                      $ 13,761   $ 10,530
Tier II Capital                                                        1,574      1,291
                                                                    ---------  ---------

Total Qualifying Capital                                            $ 15,335   $ 11,821
                                                                    =========  =========

Risk Adjusted Total Assets (including off-balance sheet exposures)  $125,883   $105,177
                                                                    =========  =========

Tier I Risk-Based Capital Ratio                                         10.9%      10.0%

Total Risk-Based Capital Ratio                                          12.2%      11.2%

Leverage Ratio                                                           8.9%       8.1%
</TABLE>

INTEREST  RATE  SENSITIVITY  MANAGEMENT

Interest  rate sensitivity is a function of the repricing characteristics of the
Company's  portfolio of assets and liabilities.  These repricing characteristics
are the time frames within which the interest-bearing assets and liabilities are
subject to change in interest rates either at replacement or maturity during the
life  of the instruments.  Sensitivity is measured as the difference between the
volume  of  assets  and  liabilities in the Company's current portfolio that are
subject  to  repricing  in  future  time  periods.  The differences are known as
interest  sensitivity gaps and are usually calculated separately for segments of
time  ranging  from  zero  to thirty days, thirty-one to ninety days, ninety-one
days  to  one  year, one year to five years, over five years and on a cumulative
basis.  The  following tables show interest sensitivity gaps for these different
intervals  as  of  December  31,  2003.


                                    Page 10
<PAGE>
<TABLE>
<CAPTION>
                                 INTEREST RATE SENSITIVITY ANALYSIS

                                       0-30      31-90     91-365       1-5      Over 5
                                       Days       Days       Day       Years     Years      Total
                                     ---------  --------  ---------  ---------  --------  ---------
<S>                                  <C>        <C>       <C>        <C>        <C>       <C>
                                                            (in thousands)
Interest-earning assets (1)
---------------------------
Loans                                $  3,805   $73,543   $ 10,866   $ 30,310   $    33   $118,557
Securities:
  Taxable                               5,018         -          -      5,382    18,556     28,956
  Tax exempt                                -       215          -      2,047     2,475      4,737
Federal funds sold                      4,340         -          -          -         -      4,340
                                       13,163    73,758     10,866     37,739    21,064    156,590

Interest-bearing liabilities (2)(3)
-----------------------------------
Demand deposits                        22,607    22,607     22,608          -         -     67,822

Money market accounts                   2,913     2,914      2,914          -         -      8,741
Savings deposits                        2,935     2,936      2,936          -         -      8,807
Time deposits                           9,741    14,277     26,301     12,393         -     62,712
Repurchase agreements                   3,206         -          -          -         -      3,206
Long-term borrowings                        -     3,609        500      1,000     1,000      6,109
                                     ---------  --------  ---------  ---------  --------  ---------

                                       41,402    46,343     55,259     13,393     1,000    157,397
                                     ---------  --------  ---------  ---------  --------  ---------

Interest sensitivity gap             $(28,239)  $27,415   $(44,393)  $ 24,346   $20,064   $   (807)
                                     =========  ========  =========  =========  ========  =========

Cumulative interest
  sensitivity gap                    $(28,239)  $  (824)  $(45,217)  $(20,871)  $  (807)
                                     =========  ========  =========  =========  ========

Ratio of interest-earning assets
  to interest-bearing liabilities        0.32      1.59       0.20       2.82     21.06
                                     =========  ========  =========  =========  ========
Cumulative ratio                         0.32       .99       0.68       0.87       .99
                                     =========  ========  =========  =========  ========

Ratio of cumulative gap
  to total interest-bearing
  assets                                (0.18)    (0.01)     (0.29)     (0.13)    (0.01)
                                     =========  ========  =========  =========  ========

<FN>
---------------
(1)  Excludes nonaccrual loans and securities.
(2)  Excludes  matured certificates which have not been redeemed by the customer
     and  on  which  no  interest  is  accruing.
(3)  Demand  and savings deposits and other short term borrowings are assumed to
     be  subject  to  movement  into  other deposit instruments in equal amounts
     during  the  0-30  day  period,  the  31-90  day period, and the 91-365 day
     period.
</TABLE>

The  above  table  indicates  that  in  a  rising interest rate environment, the
Company's  earnings  may  be  adversely  affected in the 0-365 day periods where
liabilities  will  reprice  faster than assets.  As seen in the preceding table,
for  the  first  30  days  of  repricing  opportunity  there  is  an  excess  of
interest-bearing  liabilities  over  interest-earnings  assets  of approximately
$28,239,000.  For  the  first  365  days,  interest-bearing  liabilities  exceed
earning  assets  by  $45,217,000.  During this one-year time frame, 90.9% of all
interest-bearing  liabilities  will  reprice  compared  to  62.5%  of  all
interest-earning  assets.  Changes  in  the  mix of earning assets or supporting
liabilities  can  either  increase  or  decrease the net interest margin without
affecting  interest  rate  sensitivity.  In  addition,  the interest rate spread
between  an  asset and its supporting liability can vary significantly while the
timing  of  repricing for both the asset and the liability remain the same, thus
impacting  net  interest  income.  It should be noted, therefore, that a matched
interest-sensitive  position  by  itself  will  not  ensure maximum net interest
income.  Management  continually  evaluates  the  condition  of the economy, the
pattern  of market interest rates and other economic data to determine the types


                                    Page 11
<PAGE>
of investments that should be made and at what maturities.  Using this analysis,
management establishes calculated interest sensitivity gap positions to maximize
net  interest  income  based  upon anticipated movements in the general level of
interest  rates.

INFLATION  AND  CHANGING  PRICES

A  Bank's  asset and liability structure is significantly different from that of
an industrial company in that substantially all assets and liabilities of a bank
are  monetary  in  nature.  Management  believes  the  impact  of  inflation  on
financial  results  depends  upon  the  Bank's  ability  to  react to changes in
interest  rates  and  by  such  reaction  to  reduce  the inflationary impact on
performance. Interest rates do not necessarily move in the same direction, or at
the  same  magnitude,  as  the prices of other goods and services.  As discussed
previously,  management  seeks  to  manage  the  relationship  between
interest-sensitive  assets  and  liabilities  in  order  to protect against wide
interest  rate  fluctuations,  including  those  resulting  from  inflation.

Various  information  shown  elsewhere  in this Annual Report will assist in the
understanding  of  how well the Bank is positioned to react to changing interest
rates  and  inflationary  trends.  In  particular,  the  summary of net interest
income,  the  maturity  distribution,  the  composition of the loan and security
portfolios and the data on the interest sensitivity of loans and deposits should
be  considered.

CONCLUSION

The  Bank  has  experienced  constant  growth since its opening in 1997.  It has
increased  its customer base, as shown by the continued increase in deposits and
loans  during 2003.  While management remains optimistic about the prospects for
continued  growth  and profitability, management does not anticipate that growth
will  be  at the level experienced during the Bank's initial years of operation.
No assurance can be given that the Bank will continue to grow and be profitable.

The  foregoing  is  a  forward-looking  statement  which  reflects  significant
assumptions  and subjective judgments believed by management to be reasonable as
of  the  date  of  this  Annual  Report.  It  does  not constitute a forecast or
prediction  of  actual results, and actual performance and financial results may
differ  materially  from  those  anticipated  due  to  a  variety  of  factors.


                                    Page 12
<PAGE>
       MANAGEMENT'S STATEMENT OF RESPONSIBILITY FOR FINANCIAL INFORMATION

                     Gateway Bancshares, Inc. and Subsidiary




The management of Gateway Bancshares, Inc. and subsidiary is responsible for the
preparation,  integrity,  and  objectivity  of the financial statements, related
financial  data,  and  other  information  in  this Annual Report. The financial
statements  are  prepared  in  accordance  with  generally  accepted  accounting
principles and include amounts based on management's best estimates and judgment
where  appropriate.  Financial  information  appearing  throughout  this  Annual
Report  is  consistent  with  the  financial  statements.

In  meeting  its  responsibility  both  for  the integrity and fairness of these
statements  and  information,  management  depends on the accounting systems and
related  internal  accounting  controls  that are designed to provide reasonable
assurances  that (i) transactions are authorized and recorded in accordance with
established  procedures,  (ii)  assets  are  safeguarded  and  (iii)  proper and
reliable  records  are  maintained.

The concept of reasonable assurance is based on the recognition that the cost of
internal control systems should not exceed the related benefits.  As an integral
part  of  internal  control  systems,  the Company, through its audit committee,
utilizes  internal  auditors who monitor compliance and assess the effectiveness
of  internal  control  systems  and  coordinate  audit  coverage of all areas of
operations.

The  responsibility of the Company's independent certified public accountants is
limited  to  an  expression of their opinion as to the fairness of the financial
statements  presented.  Their  opinion  is  based  on  an  audit  conducted  in
accordance  with  generally  accepted  auditing  standards as described in their
report.

The  Board of Directors is responsible for ensuring that both management and the
independent  certified  public  accountants  fulfill  their  respective
responsibilities  with  regard to the financial statements.  The Audit Committee
meets  periodically  with  both  management and the independent certified public
accountants  to  assure  that  each  is  carrying out its responsibilities.  The
independent  certified public accountants have full and free access to the Audit
Committee  and  the  Board of Directors and may meet with them, with and without
management  being  present, to discuss auditing and financial reporting matters.


                                    Page 13
<PAGE>
                    GATEWAY BANCSHARES, INC. AND SUBSIDIARY

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



                                                                            Page
                                                                            ----

REPORT  OF  INDEPENDENT  CERTIFIED  PUBLIC  ACCOUNTANTS                      15

FINANCIAL  STATEMENTS

     Consolidated  balance  sheets                                           16
     Consolidated  statements  of  income                                    17
     Consolidated  statements  of  changes  in  stockholders'  equity        18
     Consolidated  statements  of  cash  flows                               19
     Notes  to  consolidated  financial  statements                       20-40


                                    Page 14
<PAGE>


               Report of Independent Certified Public Accountants
               --------------------------------------------------



To the Stockholders and
  Board of Directors
Gateway Bancshares, Inc.
Ringgold, Georgia

     We  have  audited  the  accompanying consolidated balance sheets of Gateway
Bancshares,  Inc.  and  subsidiary  as  of  December  31, 2003 and 2002, and the
related  consolidated statements of income, changes in stockholders' equity, and
cash  flows  for  the  years  then  ended.  These  financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion  on  these  financial  statements  based  on  our  audits.

     We  conducted  our  audits  in accordance with auditing standards generally
accepted  in the United States of America.  Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test  basis,  evidence  supporting  the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made  by  management,  as well as evaluating the overall
financial  statement  presentation.  We  believe  that  our  audits  provide  a
reasonable  basis  for  our  opinion.

     In  our  opinion,  the  consolidated financial statements referred to above
present  fairly,  in  all  material  respects, the financial position of Gateway
Bancshares,  Inc.  and  subsidiary  as  of  December  31, 2003 and 2002, and the
results  of  their  operations  and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.





/s/  Hazlett, Lewis & Bieter, PLLC
Hazlett, Lewis & Bieter, PLLC

Chattanooga,  Tennessee
February  27,  2004


                                    Page 15
<PAGE>
<TABLE>
<CAPTION>
                    GATEWAY BANCSHARES, INC. AND SUBSIDIARY

                          CONSOLIDATED BALANCE SHEETS
                           December 31, 2003 and 2002

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

                                                           2003           2002
                                                       -------------  ------------
<S>                                                    <C>            <C>
      ASSETS

Cash and due from banks                                $  8,989,083   $  7,049,445
Federal funds sold                                        4,340,000      7,450,000
                                                       -------------  ------------

      Total cash and cash equivalents                    13,329,083     14,499,445

Securities available for sale                            33,692,972     29,374,441
Federal Home Loan Bank stock, at cost                       298,200        260,000
Loans, net of allowance for loan losses of $1,664,578
  in 2003 and $1,291,097 in 2002                        116,892,801     92,606,110
Premises and equipment                                    2,956,709      2,930,060
Accrued interest receivable                                 772,900        723,943
Other assets                                              1,375,060      1,077,919
                                                       -------------  ------------

      Total assets                                     $169,317,725   $141,471,918
                                                       =============  ============

      LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits:
  Noninterest-bearing demand deposits                  $ 12,308,701   $  7,816,038
  NOW accounts                                           55,512,617     37,271,002
  Money market accounts                                   8,741,306      4,607,482
  Savings deposits                                        8,806,886      9,013,671
  Time deposits                                          62,711,592     63,282,805
                                                       -------------  ------------

      Total deposits                                    148,081,102    121,990,998

Securities sold under agreements to repurchase            3,206,203      3,202,343
Long-term obligations                                     3,609,000        800,000
Federal Home Loan Bank advances                           2,500,000      4,000,000
Accrued interest payable                                    261,288        288,629
Other liabilities                                           500,767        793,648
                                                       -------------  ------------

      Total liabilities                                 158,158,360    131,075,618
                                                       -------------  ------------

Stockholders' equity:
  Common stock, $5 par value; 10,000,000
    shares authorized; shares outstanding of
    652,638 in 2003 and 681,758 in 2002                   3,263,190      3,408,790
  Additional paid-in capital                              3,296,440      3,610,206
  Retained earnings                                       4,638,896      3,067,123
  Accumulated other comprehensive income                    (39,161)       310,181
                                                       -------------  ------------

      Total stockholders' equity                         11,159,365     10,396,300
                                                       -------------  ------------

      Total liabilities and stockholders' equity       $169,317,725   $141,471,918
                                                       =============  ============
</TABLE>

The  Notes  to  Consolidated  Financial Statements are an integral part of these
statements.


                                    Page 16
<PAGE>
<TABLE>
<CAPTION>
                    GATEWAY BANCSHARES, INC. AND SUBSIDIARY

                        CONSOLIDATED STATEMENTS OF INCOME
                     Years Ended December 31, 2003 and 2002

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

                                                            2003        2002
                                                         ----------  ----------
<S>                                                      <C>         <C>
INTEREST INCOME
  Loans                                                  $7,361,630  $6,398,871
  Securities                                                883,144   1,151,538
  Other                                                      36,855      46,032
                                                         ----------  ----------

    Total interest income                                 8,281,629   7,596,441

INTEREST EXPENSE                                          2,882,934   2,945,617
                                                         ----------  ----------

    Net interest income                                   5,398,695   4,650,824

Provision for loan losses                                   624,170     436,000
                                                         ----------  ----------

    Net interest income after provision for loan losses   4,774,525   4,214,824
                                                         ----------  ----------

NONINTEREST INCOME
  Service charges                                           973,898     750,705
  Mortgage loan fees                                        517,710     404,345
  Net realized gains on securities                          225,705      23,216
  Other noninterest income                                  325,377     302,868
                                                         ----------  ----------

    Total noninterest income                              2,042,690   1,481,134
                                                         ----------  ----------

NONINTEREST EXPENSES
  Salaries and employee benefits                          2,570,914   2,233,129
  Occupancy expense                                         201,203     186,817
  Other operating expenses                                1,639,248   1,383,589
                                                         ----------  ----------

    Total noninterest expenses                            4,411,365   3,803,535
                                                         ----------  ----------

    Income before income taxes                            2,405,850   1,892,423

Income taxes                                                834,077     637,729
                                                         ----------  ----------

    Net income                                           $1,571,773  $1,254,694
                                                         ==========  ==========

EARNINGS PER COMMON SHARE, BASIC AND DILUTED

  Net income per share                                   $     2.35  $     1.84

  Basic weighted average shares outstanding                 669,057     681,624

  Diluted earnings per common share                      $     2.19  $     1.81

  Diluted weighted average shares outstanding               718,849     694,543
</TABLE>

The  Notes  to  Consolidated  Financial Statements are an integral part of these
statements.


                                    Page 17
<PAGE>
<TABLE>
<CAPTION>
                                           GATEWAY  BANCSHARES,  INC.  AND  SUBSIDIARY

                                 CONSOLIDATED  STATEMENTS  OF  CHANGES  IN  STOCKHOLDERS'  EQUITY
                                              Years Ended December 31, 2003 and 2002


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


                                                                                                                    Accumulated
                                               Compre-         Total                     Additional                    Other
                                               hensive     Stockholders'     Common       Paid-in      Retained    Comprehensive
                                               Income         Equity          Stock       Capital      Earnings       Income
                                             -----------  ---------------  -----------  ------------  ----------  ---------------
<S>                                          <C>          <C>              <C>          <C>           <C>         <C>
BALANCE, December 31, 2001                                $    8,735,237   $3,395,240   $ 3,441,827   $1,812,429  $       85,741

  Exercise of stock options                                       32,520       13,550        18,970            -               -

  Stock options compensation                                     149,409            -       149,409            -               -

  Comprehensive income:
                                             $1,254,694        1,254,694            -             -    1,254,694               -
    Net income
    Other comprehensive income, net of tax:
      Unrealized holding gains (losses) on
        securities available for sale, net
        of reclassification adjustment          224,440          224,440            -             -            -         224,440
                                             -----------  ---------------  -----------  ------------  ----------  ---------------

Total comprehensive income                   $1,479,134
                                             ===========

BALANCE, December 31, 2002                                    10,396,300    3,408,790     3,610,206    3,067,123         310,181

  Exercise of stock options                                      134,560       55,650        78,910            -               -

  Repurchase of 40,250 shares of common
    stock, at cost                                              (713,510)    (201,250)     (512,260)           -               -

  Stock options compensation                                     119,584            -       119,584            -               -

  Comprehensive income:
    Net income                               $1,571,773        1,571,773            -             -    1,571,773               -

    Other comprehensive income, net of tax:
      Unrealized holding gains (losses) on
        securities available for sale, net
        of reclassification adjustment         (349,342)        (349,342)           -             -            -        (349,342)
                                             -----------  ---------------  -----------  ------------  ----------  ---------------

    Total comprehensive income               $1,222,431
                                             ===========


BALANCE, December 31, 2003                                $   11,159,365   $3,263,190   $ 3,296,440   $4,638,896  $      (39,161)
                                                          ===============  ===========  ============  ==========  ===============
</TABLE>


The  Notes  to  Consolidated  Financial Statements are an integral part of these
statements.


                                    Page 18
<PAGE>
<TABLE>
<CAPTION>
                        GATEWAY  BANCSHARES,  INC.  AND  SUBSIDIARY

                         CONSOLIDATED  STATEMENTS  OF  CASH  FLOWS
                          Years Ended December 31, 2003 and 2002

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


                                                                  2003           2002
                                                              -------------  -------------
<S>                                                           <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                                  $  1,571,773   $  1,254,694
  Adjustments to reconcile net income to net
    cash provided by operating activities:
      Depreciation                                                 170,566        177,670
      Provision for loan losses                                    624,170        436,000
      Stock options compensation                                   119,584        149,409
      Deferred income taxes                                       (144,823)      (158,071)
      Net amortization on securities available for sale            472,130        255,055
      Net realized gains on securities                            (225,705)       (23,216)
      Change in operating assets and liabilities:
        Accrued interest receivable                                (48,957)        48,614
        Other assets                                                61,795       (417,671)
        Accrued interest payable                                   (27,341)       (86,707)
        Other liabilities                                         (292,881)       342,782
                                                              -------------  -------------

          Net cash provided by operating activities              2,280,311      1,978,559
                                                              -------------  -------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of securities available for sale                    (35,057,802)   (18,056,362)
  Proceeds from securities available for sale                   29,929,391     16,307,711
  Purchase of Federal Home Loan Bank stock                         (38,200)             -
  Net increase in loans                                        (24,910,861)   (14,532,388)
  Purchase of premises and equipment                              (197,215)       (77,815)
                                                              -------------  -------------

          Net cash used in investing activities                (30,274,687)   (16,358,854)
                                                              -------------  -------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Net increase in deposits                                      26,090,104      8,881,609
  Advances from Federal Home Loan Bank                                   -      2,000,000
  Payments on Federal Home Loan Bank                            (1,500,000)             -
  Proceeds from long-term obligations                            3,909,000              -
  Principal payments on long-term obligations                   (1,100,000)      (200,000)
  Increase in securities sold under agreements to repurchase         3,860      3,202,343
  Proceeds from stock options exercised                            134,560         32,520
  Repurchase of common stock                                      (713,510)             -
                                                              -------------  -------------

          Net cash provided by financing activities             26,824,014     13,916,472
                                                              -------------  -------------

NET DECREASE IN CASH AND CASH EQUIVALENTS                       (1,170,362)      (463,823)

CASH AND CASH EQUIVALENTS, beginning of year                    14,499,445     14,963,268
                                                              -------------  -------------

CASH AND CASH EQUIVALENTS, end of year                        $ 13,329,083   $ 14,499,445
                                                              =============  =============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
  Cash paid during the year for:
    Interest                                                  $  2,910,275   $  3,032,324
    Income taxes                                                 1,052,032        602,405
                                                              =============  =============
</TABLE>

The  Notes  to  Consolidated  Financial Statements are an integral part of these
statements.


                                    Page 19
<PAGE>
                    GATEWAY BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

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

Note 1.   Summary  of  Significant  Accounting  Policies

          The  accounting  and  reporting  policies  of the Company conform with
          generally  accepted  accounting  principles  and  practices within the
          banking  industry.  The  policies  that  materially  affect  financial
          position  and  results  of  operations  are  summarized  as  follows:

          Nature  of  operations:

          Gateway  Bancshares, Inc. (the Company) is a bank holding company that
          owns  100  percent  of  the outstanding common stock of Gateway Bank &
          Trust (the Bank). The Bank provides a variety of financial services to
          individuals  and  corporate  customers  through  its  two locations in
          Ringgold  and  Fort  Oglethorpe,  Georgia.  The Bank's primary deposit
          products  are  interest-bearing  checking accounts and certificates of
          deposit. Its primary lending products are commercial, residential, and
          consumer  loans.

          Basis  of  consolidation:

          The  consolidated  financial  statements  include  the accounts of the
          Company  and  its  wholly-owned  subsidiary. All material intercompany
          balances  and  transactions  have  been  eliminated  in consolidation.

          Use  of  estimates:

          The  preparation  of financial statements in conformity with generally
          accepted  accounting  principles requires management to make estimates
          and  assumptions  that  affect  the  reported  amounts  of  assets and
          liabilities and disclosure of contingent assets and liabilities at the
          date  of  the financial statements and the reported amounts of revenue
          and  expenses during the reporting period. Actual results could differ
          from  those  estimates.

          The  determination of the adequacy of the allowance for loan losses is
          based  on  estimates  that are particularly susceptible to significant
          changes  in  the  economic  environment  and  market  conditions.  In
          connection  with  the  determination of the estimated losses on loans,
          management  obtains independent appraisals for significant collateral.

          The Bank's loans are generally secured by specific items of collateral
          including  real  property,  consumer  assets,  and  business  assets.
          Although  the  Bank  has  a  diversified loan portfolio, a substantial
          portion  of its debtors' ability to honor their contracts is dependent
          on  local  economic  conditions.

          While  management  uses  available  information to recognize losses on
          loans,  further  reductions  in  the  carrying amounts of loans may be
          necessary  based on changes in local economic conditions. In addition,
          regulatory agencies, as an integral part of their examination process,
          periodically  review  the estimated losses on loans. Such agencies may
          require  the  Bank  to  recognize  additional  losses  based  on their
          judgments  about  information  available  to them at the time of their
          examination.  Because of these factors, it is reasonably possible that
          the  estimated losses on loans may change materially in the near term.
          However,  the  amount of the change that is reasonably possible cannot
          be  estimated.


                                    Page 20
<PAGE>
                    GATEWAY BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

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

Note 1.   Summary  of  Significant  Accounting  Policies  (continued)

          Cash  and  cash  equivalents:

          For  purposes  of  reporting  cash  flows,  cash  and cash equivalents
          include  cash on hand, amounts due from banks, and federal funds sold.

          Securities:

          Securities  available  for  sale  are  carried  at  market  value with
          unrealized  gains  and  losses reported in other comprehensive income.
          The amortization of premiums and accretion of discounts are recognized
          in  interest  income  using  methods approximating the interest method
          over  the  period  to  maturity. Realized gains (losses) on securities
          available  for  sale  are included in other income (expense) and, when
          applicable, are reported as a reclassification adjustment, net of tax,
          in other comprehensive income. Gains and losses on sales of securities
          are  determined  on  the  specific-identification  method.

          Declines  in  the  market  value  of  individual  available  for  sale
          securities  below  their  cost that are other than temporary result in
          write-downs  of  the  individual securities to their market value. The
          related  write-downs  are  included  in  earnings  as realized losses.

          Loans:

          Loans  are stated at unpaid principal balances, less the allowance for
          loan  losses  and  net  deferred  loan  fees.

          Loan  origination  and  commitment  fees,  as  well  as certain direct
          origination  costs,  are  deferred and amortized as a yield adjustment
          over  the  lives  of  the  related  loans  using  the interest method.
          Amortization  of  deferred  loan  fees  is discontinued when a loan is
          placed  on  nonaccrual  status.

          The  accrual  of  interest  on  mortgage  and  commercial  loans  is
          discontinued  at  the  time  the loan is 90 days delinquent unless the
          credit  is  well  secured. Consumer loans are typically charged off no
          later  than  180  days  past  due.  In  all cases, loans are placed on
          nonaccrual  or  are  charged  off  at an earlier date if collection of
          principal  or  interest  is  considered  doubtful.

          Interest income generally is not recognized on specific impaired loans
          unless  the  likelihood  of  further loss is remote. Interest payments
          received  on  such  loans  are  applied  as  a  reduction  of the loan
          principal  balance.  Interest  income  on  other  impaired  loans  is
          recognized  only  to  the  extent  of  interest  payments  received.


                                    Page 21
<PAGE>
                    GATEWAY BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

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

Note 1.   Summary  of  Significant  Accounting  Policies  (continued)

          Allowance  for  loan  losses:

          The  allowance  for  loan  losses  is  maintained at a level which, in
          management's judgment, is adequate to absorb credit losses inherent in
          the  loan  portfolio.  The  amount  of  the  allowance  is  based  on
          management's  evaluation  of the collectibility of the loan portfolio,
          including  the  nature of the portfolio, credit concentrations, trends
          in  historical  loss  experience,  specific  impaired  loans, economic
          conditions,  and other risks inherent in the portfolio. Allowances for
          impaired  loans are generally determined based on collateral values or
          the  present  value  of estimated cash flows. Although management uses
          available  information  to  recognize  losses  on  loans,  because  of
          uncertainties  associated  with  local economic conditions, collateral
          values,  and  future  cash  flows  on impaired loans, it is reasonably
          possible  that a material change could occur in the allowance for loan
          losses  in  the  near  term. However, the amount of the change that is
          reasonably possible cannot be estimated. The allowance is increased by
          a  provision for loan losses, which is charged to expense, and reduced
          by  charge-offs,  net of recoveries. Changes in the allowance relating
          to  impaired  loans  are charged or credited to the provision for loan
          losses.

          Premises  and  equipment:

          Land  is  carried at cost. Other premises and equipment are carried at
          cost  net  of accumulated depreciation. Depreciation is computed using
          the  straight-line and the declining balance methods based principally
          on  the  estimated useful lives of the assets. Maintenance and repairs
          are  expensed  as  incurred while major additions and improvements are
          capitalized.  Gains and losses on dispositions are included in current
          operations.

          Foreclosed  real  estate:

          Real estate properties acquired through or in lieu of loan foreclosure
          are  initially  recorded at the lower of the Bank's carrying amount or
          fair value less estimated selling cost at the date of foreclosure. Any
          write-downs based on the asset's fair value at the date of acquisition
          are charged to the allowance for loan losses. After foreclosure, these
          assets  are carried at the lower of their new cost basis or fair value
          less  cost  to  sell.  Costs  of significant property improvements are
          capitalized,  whereas costs relating to holding property are expensed.
          Valuations  are  periodically  performed  by  management,  and  any
          subsequent  write-downs  are  recorded  as  a charge to operations, if
          necessary,  to reduce the carrying value of a property to the lower of
          its  cost  or  fair  value  less  cost  to  sell.

          Securities  sold  under  agreements  to  repurchase:

          The  Company  enters  into  sales  of  securities  under agreements to
          repurchase  identical  securities  the  next  day.  The  securities
          underlying  the  agreements  are  book-entry  securities.


                                    Page 22
<PAGE>
                    GATEWAY BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

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

Note 1.   Summary  of  Significant  Accounting  Policies  (continued)

          Earnings  per  common  share:

          Earnings  per common share are calculated on the basis of the weighted
          average  number  of  common  shares  outstanding.

          Stock  options:

          The  Company has a stock option plan, which is described more fully in
          Note  14.  Prior  to  2002, the Company accounted for its stock option
          plan  under  the  recognition and measurement provisions of Accounting
          Principles  Board  Opinion  No.  25,  "Accounting  for Stock Issued to
          Employees,"  and  related  interpretations. Effective January 1, 2002,
          the Company adopted the fair value recognition provisions of Statement
          of Financial Accounting Standards No. 123, "Accounting for Stock-Based
          Compensation," (SFAS No. 123) for stock-based employee compensation by
          applying  the  retroactive  restatement  method.

          Income  taxes:

          Income  taxes  are  provided  for  the tax effects of the transactions
          reported  in  the  financial statements and consist of taxes currently
          due  plus  deferred  income  taxes  related  primarily  to differences
          between  the  basis  of  the allowance for loan losses and accumulated
          depreciation.  The  deferred  tax assets and liabilities represent the
          future tax return consequences of those differences, which will either
          be taxable or deductible when the assets and liabilities are recovered
          or  settled.  Deferred  tax  assets  and  liabilities are reflected at
          income  tax  rates  applicable to the period in which the deferred tax
          assets  or  liabilities  are  expected  to  be realized or settled. As
          changes  in  tax  laws  or  rates are enacted, deferred tax assets and
          liabilities  are  adjusted through the provision for income taxes. The
          Company  files  consolidated  income  tax returns with its subsidiary.

          Advertising  costs:

          The  Company  expenses  all  advertising  costs  as  incurred.

          Segment  reporting:

          Statement  of  Financial  Accounting  Standards  No. 131, "Disclosures
          about  Segments of an Enterprise and Related Information" provides for
          the  identification  of  reportable  segments on the basis of discreet
          business  units  and  their  financial  information to the extent such
          units  are  reviewed by an entity's chief decision maker (which can be
          an  individual  or group of management persons). The Statement permits
          aggregation  or  combination  of  segments  that  have  similar
          characteristics. In the Company's operations, each branch is viewed by
          management  as  being  a  separately  identifiable  business  or


                                    Page 23
<PAGE>
                    GATEWAY BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

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

Note 1.   Summary  of  Significant  Accounting  Policies  (continued)

          Segment  reporting:  (continued)

          segment  from the perspective of monitoring performance and allocation
          of  financial  resources.  Although the branches operate independently
          and  are  managed  and  monitored  separately,  each  is substantially
          similar  in  terms  of business focus, type of customers, products and
          services. Accordingly, the Company's consolidated financial statements
          reflect the presentation of segment information on an aggregated basis
          in  one  reportable  segment.

          New  accounting  standards:

          In  April  2002,  the  Financial  Accounting  Standards  Board  issued
          Statement  of  Financial  Accounting Standards No. 145, "Rescission of
          FASB  Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13,
          and  Technical  Corrections."  This  statement eliminates Statement of
          Financial Accounting Standards No. 4, "Reporting Gains and Losses from
          Extinguishment  of  Debt"  as  amended  by  Statement  of  Financial
          Accounting  Standards No. 64, "Extinguishments of Debt Made to Satisfy
          Sinking-Fund  Requirements."  As  a  result,  gains  and  losses  from
          extinguishment  of debt are required to be classified as extraordinary
          items  if  they  meet  the  definition  of  unusual  and infrequent as
          prescribed  in  Accounting  Principles  Board  Opinion  No.  30.
          Additionally,  Statement  of  Financial  Accounting  Standards No. 145
          amends Statement of Financial Accounting Standards No. 13, "Accounting
          for  Leases"  to  require  that lease modifications that have economic
          effects similar to sale-leaseback transactions be accounted for in the
          same  manner  as  sale-leaseback  transactions. Statement of Financial
          Accounting  Standards  No. 145 addresses a number of additional issues
          that  were not substantive in nature. The provisions of this statement
          were  effective  at  various dates in 2002 and 2003 and did not have a
          material  impact  on  the Company's consolidated financial statements.

          In  June  2002,  the  Financial  Accounting  Standards  Board  issued
          Statement  of  Financial Accounting Standards No. 146, "Accounting for
          Costs  Associated  with  Exit  or Disposal Activities." This statement
          requires  that  a  liability  for  costs  associated  with  an exit or
          disposal  activity  be  recognized  when the liability is probable and
          represents  obligations  to  transfer  assets or provide services as a
          result  of  past  transactions.  The  provisions of the statement were
          effective  for  exit  or  disposal activities that are initiated after
          December 31, 2002, and did not have a material impact on the Company's
          consolidated  financial  statements.

          In  October  2002,  the  Financial  Accounting  Standards Board issued
          Statement  of Financial Accounting Standards No. 147, "Acquisitions of
          Certain  Financial  Institutions - an Amendment of FASB Statements No.
          72  and  144  and  FASB  Interpretation No. 9." This statement removes
          acquisitions  of  financial  institutions  from  the  scope  of  both
          Statement


                                    Page 24
<PAGE>
                    GATEWAY BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

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

Note 1.   Summary  of  Significant  Accounting  Policies  (continued)

          New  accounting  standards:  (continued)

          of  Financial Accounting Standards No. 72 and Interpretation No. 9 and
          requires  that  those transactions be accounted for in accordance with
          Statement  of  Financial  Accounting  Standards  No.  141,  "Business
          Combinations"  and No. 142, "Goodwill and Other Intangible Assets." As
          a  result, the requirement in paragraph 5 of Statement 72 to recognize
          (and  subsequently  amortize)  any  excess  of  the  fair  value  of
          liabilities  assumed over the fair value of intangible assets acquired
          as an unidentifiable intangible asset (SFAS No. 72 goodwill) no longer
          applies to acquisitions within the scope of the statement. Adoption of
          this  Standard  did  not  have  a  material  effect  on  the Company's
          consolidated  financial  statements.

          In  December  of 2002, the Financial Accounting Standards Board issued
          Statement  No.  148,  "Accounting  for  Stock-Based  Compensation  -
          Transition  and  Disclosure" (SFAS 148). SFAS 148 provides alternative
          methods  of  transition for a voluntary change to the fair value based
          method  of  accounting  for  stock-based  employee  compensation.  In
          addition,  SFAS 148 amends the disclosure requirements of SFAS No. 123
          to  require prominent disclosures in both annual and interim financial
          statements  about  the  method  of accounting for stock-based employee
          compensation and the effect of the method used on reported results. In
          2002  the  Company  voluntarily  changed to the fair value method. The
          accompanying  consolidated  financial statements include stock options
          compensation  expense  and  the  required  disclosures  are  provided.

          In  April  2003, the FASB issued SFAS No. 149, "Amendment of Statement
          133  on Derivative Instruments and Hedging Activities." This Statement
          amends and clarifies financial accounting and reporting for derivative
          instruments,  including  certain embedded derivatives, and for hedging
          activities  under SFAS No. 133, "Accounting for Derivative Instruments
          and Hedging Activities." This Statement amends SFAS No. 133 to reflect
          the  decisions  made  as  part of the Derivatives Implementation Group
          (DIG)  and  in  other  FASB projects or deliberations. SFAS No. 149 is
          effective  for contracts entered into or modified after June 30, 2003,
          and for hedging relationships designated after June 30, 2003. Adoption
          of  this  Standard  did  not  have  a material effect on the Company's
          consolidated  financial  statements.

          In  May  2003,  the  FASB issued SFAS No. 150, "Accounting for Certain
          Financial  Instruments  with  Characteristics  of Both Liabilities and
          Equity."  This  Statement  establishes  standards  for  how  an entity
          classifies  and  measures  certain  financial  instruments  with
          characteristics  of  both  liabilities  and  equity. This Statement is
          effective for financial instruments entered into or modified after May
          31,  2003,  and  otherwise  is effective at the beginning of the first
          interim  period  beginning  after  June  15,  2003.  Adoption  of this
          Standard  did not have a material effect on the Company's consolidated
          financial  statements.


                                    Page 25
<PAGE>
                    GATEWAY BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

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

Note 1.   Summary  of  Significant  Accounting  Policies  (continued)

          New  accounting  standards:  (continued)

          In  November  2002,  the  FASB  issued Interpretation No. 45, (FIN 45)
          "Guarantor's  Accounting  and  Disclosure Requirements for Guarantees,
          Including  Indirect  Guarantees  of  Indebtedness  of  Others,"  which
          elaborates  on  the  disclosures  to  be made by a guarantor about its
          obligations  under certain guarantees issued. It also clarifies that a
          guarantor is required to recognize, at the inception of a guarantee, a
          liability  for  the fair value of the obligation undertaken in issuing
          the  guarantee.  The initial recognition and measurement provisions of
          this  Interpretation apply on a prospective basis to guarantees issued
          or  modified  after  December 31, 2002. The disclosure requirements in
          this  Interpretation  were effective for periods ending after December
          15,  2002. Adoption of this Standard did not have a material effect on
          the  Company's  consolidated  financial  statements.

          In  December  2003, the FASB issued revised Interpretation No. 46 (FIN
          46),  "Consolidation  of  Variable  Interest  Entities."  This
          Interpretation  clarifies the application of ARB No. 51, "Consolidated
          Financial  Statements," for certain entities in which equity investors
          do not have the characteristics of a controlling financial interest or
          do  not  have  sufficient equity at risk for the entity to finance its
          activities without additional subordinated support from other parties.
          This  Interpretation  requires  variable  interest  entities  to  be
          consolidated  by  the  primary  beneficiary  which  represents  the
          enterprise  that  will  absorb  the  majority of the variable interest
          entities'  expected  losses  if  they occur, receive a majority of the
          variable  interest  entities' residual returns if they occur, or both.
          This  Interpretation  was  effective  for  variable  interest entities
          created  after January 31, 2003, and for variable interest entities in
          which  an  enterprise  obtains  an  interest  after  that  date.  This
          Interpretation is effective in the first fiscal year or interim period
          ending  after  March 15, 2004, for variable interest entities in which
          an  enterprise  holds  a  variable  interest  that was acquired before
          February  1,  2003,  with earlier adoption permitted. Adoption of this
          Standard  did not have a material effect on the Company's consolidated
          financial  statements.

          Reclassifications:

          Certain  reclassifications  have been made to 2002 financial statement
          amounts  to  conform  to  the  2003  presentation.


                                    Page 26
<PAGE>
                    GATEWAY BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

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

Note  2.  Securities

          Securities  have  been  classified  in  the balance sheet according to
          management's  intent  as  securities available for sale. The amortized
          cost  and  approximate market value of securities at December 31, 2003
          and  2002,  are  as  follows:

<TABLE>
<CAPTION>
                                                        2003
                                     --------------------------------------------
                                                  Gross        Gross
                                   Amortized   Unrealized    Unrealized     Market
                                     Cost         Gains        Losses        Value
                                  -----------  -----------  ------------  -----------
<S>                               <C>          <C>          <C>           <C>
Securities available for sale:
  Securities of U.S. Government,
    U.S. Government agencies
    and corporations              $ 6,534,777  $    15,875  $         -   $ 6,550,652

  Mortgage-backed securities       21,540,419       34,923     (178,118)   21,397,224

  Municipal securities              4,680,940      106,477      (51,321)    4,736,096
  Other securities                  1,000,000       15,000       (6,000)    1,009,000
                                  -----------  -----------  ------------  -----------

                                  $33,756,136  $   172,275  $  (235,439)  $33,692,972
                                  ===========  ===========  ============  ===========

                                                       2002
                                     --------------------------------------------
                                                  Gross       Gross
                                  Amortized    Unrealized   Unrealized      Market
                                     Cost         Gains        Losses        Value
                                  -----------  -----------  ------------  -----------

Securities available for sale:
  Securities of U.S. Government
    agencies and corporations     $ 7,347,043  $   146,441  $      (156)  $ 7,493,328

  Mortgage-backed securities       15,068,089      198,111       (9,176)   15,257,024

  Municipal securities              3,439,386      116,226       (1,748)    3,553,864

  Corporate debt securities         2,519,632       28,593            -     2,548,225

  Other securities                    500,000       22,000            -       522,000
                                  -----------  -----------  ------------  -----------
                                  $28,874,150  $   511,371  $   (11,080)  $29,374,441
                                  ===========  ===========  ============  ===========
</TABLE>

          At  December  31,  2003,  the  Bank  had virtually no securities in an
          unrealized  loss  position  for  one  year  or  longer.


                                    Page 27
<PAGE>
                    GATEWAY BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

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

Note  2.  Securities  (continued)

          The  amortized  cost  and  market  value of securities at December 31,
          2003,  by  contractual  maturity, are shown below. Expected maturities
          will differ from contractual maturities because borrowers may have the
          right to call or prepay obligations with or without call or prepayment
          penalties.

<TABLE>
<CAPTION>
                                      Securities Available for Sale
                                    ---------------------------------
                                       Amortized        Estimated
                                         Cost           Fair Value
                                    ---------------  ----------------
<S>                                 <C>              <C>
  Due in one year or less           $     5,232,690  $      5,233,057
  Due after one year to five years        7,446,319         7,428,783
  Due from five years to ten years       13,391,952        13,330,461
  Due after ten years                     7,685,175         7,700,671
                                    ---------------  ----------------

                                    $    33,756,136  $     33,692,972
                                    ===============  ================
</TABLE>

          Certain  securities transactions for the years ended December 31, 2003
          and  2002,  are  as  follows:

<TABLE>
<CAPTION>
                                         2003         2002
                                      -----------  ----------
<S>                                   <C>          <C>
  Proceeds from sales of securities   $10,896,394  $2,743,385
  Gross gains realized                    231,027      24,750
  Gross losses realized                     5,322       1,534
  Income taxes recorded on net gains       85,768       8,822
</TABLE>

          Securities  with  a  book  value  of  approximately  $30,221,000  and
          $18,010,000  at December 31, 2003 and 2002, respectively, were pledged
          to  secure  various  deposits  and  Federal  Home  Loan Bank advances.

Note 3.   Loans  and  Allowance  for  Loan  Losses

          A  summary  of  transactions  in the allowance for loan losses for the
          years  ended  December  31,  2003  and  2002,  is  as  follows:

<TABLE>
<CAPTION>
                                               2003         2002
                                            -----------  -----------
<S>                                         <C>          <C>

  Balance, beginning of year                $1,291,097   $  996,301

    Provision charged to operating expense     624,170      436,000
    Recoveries of loans charged off             15,171        8,150
    Loans charged off                         (265,860)    (149,354)
                                            -----------  -----------

  Balance, end of year                      $1,664,578   $1,291,097
                                            ===========  ===========
</TABLE>


                                    Page 28
<PAGE>
                    GATEWAY BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

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

Note  3.  Loans  and  Allowance  for  Loan  Losses  (continued)

          At  December  31,  2003  and  2002,  the  Bank's  loans consist of the
          following  (in  thousands):

<TABLE>
<CAPTION>
                                      2003       2002
                                    ---------  --------
<S>                                 <C>        <C>
  Commercial and industrial loans   $ 35,019   $29,849
  Real estate loans - construction    18,205     9,033
  Real estate loans - other           52,828    44,669
  Consumer                            11,949    10,251
  Other                                  557        95
                                    ---------  --------
    Total loans                      118,558    93,897

  Less - Allowance for loan losses    (1,665)   (1,291)
                                    ---------  --------

  Net loans                         $116,893   $92,606
                                    =========  ========
</TABLE>

          The  Bank's  only  significant concentration of credit at December 31,
          2003,  occurred  in  real  estate  loans,  which totaled approximately
          $71,033,000. While real estate loans accounted for 60 percent of total
          loans,  these  loans  were  primarily  residential  mortgage  loans,
          commercial loans secured by commercial properties, and consumer loans.
          Construction,  land  acquisition,  and  development loans represent 15
          percent  of  total  loans.  All  real  estate  loans  are  secured  by
          properties  located  in  Georgia  and  Tennessee.

          In  the  normal course of business, the Bank makes loans to directors,
          executive  officers  and  principal  shareholders  of  the  Bank  on
          substantially the same terms, including interest rates and collateral,
          as those prevailing at the time for comparable transactions with other
          borrowers.  Loans  to  directors,  executive  officers,  and principal
          shareholders  totaled  approximately  $3,763,000 at December 31, 2003.
          During  2003,  new  loans made to such related parties were $1,383,000
          and  principal  payments  totaled  $392,000.

          At December 31, 2003 and 2002, loans that were specifically classified
          as  impaired  were  insignificant  in  relation  to  the  Bank's  loan
          portfolio.  At  December  31,  2003  and  2002,  the  total  recorded
          investment  in  loans  past due ninety days or more and still accruing
          interest  totaled  approximately  $210,000 and $185,000, respectively.


                                    Page 29
<PAGE>
                    GATEWAY BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

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

Note  4.  Premises  and  Equipment

          A  summary of premises and equipment at December 31, 2003 and 2002, is
          as  follows:

<TABLE>
<CAPTION>
                                           2003         2002
                                        -----------  -----------
<S>                                     <C>          <C>
  Land                                  $  310,664   $  310,664
  Buildings and leasehold improvements   2,096,713    2,091,289
  Furniture, fixtures and equipment      1,425,551    1,226,021
  Vehicles                                  21,373       44,207
                                        -----------  -----------

                                         3,854,301    3,672,181
  Accumulated depreciation                (897,592)    (742,121)
                                        -----------  -----------

                                        $2,956,709   $2,930,060
                                        ===========  ===========
</TABLE>

Note  5.  Long-Term  Obligations

          At December 31, 2003 and 2002, the Company had the following long-term
          obligations:

<TABLE>
<CAPTION>
                                                         2003       2002
                                                      ----------  --------
<S>                                                   <C>         <C>
  Note payable to financial institution; interest
    payments at prime less one-half percent due
    quarterly; principal due on September 20, 2004;
    secured by 600,000 shares of Gateway Bank &
    Trust common stock.  This loan was repaid from
    the proceeds of the Floating Rate Junior
    Subordinated Debt Securities discussed below      $        -  $800,000

  Floating Rate Junior Subordinated Debt Securities,
    interest due quarterly at the 3-month LIBOR
    rate plus 2.85% (4.02% at December 31, 2003);
    principal due December 2033; callable on or
    after December 17, 2008                            3,609,000         -
                                                      ----------  --------

                                                      $3,609,000  $800,000
                                                      ==========  ========
</TABLE>


                                    Page 30
<PAGE>
                    GATEWAY BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

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

Note  6.  Federal  Home  Loan  Bank  Advances

          At  December  31,  2003  and 2002, Federal Home Loan Bank advances are
          secured  by  single-family  first  mortgage  loans  and consist of the
          following:

<TABLE>
<CAPTION>
                                                   2003        2002
                                                ----------  ----------
<S>                                             <C>         <C>
  Advances requiring monthly interest payments
    at 5.72%, maturing January 13, 2003         $        -  $1,000,000
  Advances requiring monthly interest payments
    at 2.24%, maturing August 27, 2003                   -     500,000
  Advances requiring monthly interest payments
    in the range of 2.73% to 3.84%, maturing
    August 27, 2004 through August 28, 2006      1,500,000   1,500,000
  Advances requiring monthly interest payments
    at 6.09%, maturing September 15, 2010        1,000,000   1,000,000
                                                ----------  ----------

                                                $2,500,000  $4,000,000
                                                ==========  ==========
</TABLE>

          At  December  31,  2003,  principal payments on Federal Home Loan Bank
          advances  are  payable  as  follows:

                2004                 $  500,000
                2005                    500,000
                2006                    500,000
                2007                          -
                2008                          -
                Thereafter            1,000,000
                                     ----------

                                     $2,500,000
                                     ==========


Note  7.  Other  Operating  Expenses

          Other  operating  expenses  for  the years ended December 31, 2003 and
          2002,  consist  of  the  following:

<TABLE>
<CAPTION>
                                       2003        2002
                                    ----------  ----------
<S>                                 <C>         <C>

  Advertising and marketing         $   76,010  $   45,536
  Data processing                      408,664     317,653
  Furniture and equipment expense      190,063     184,873
  Postage, freight, and express        116,408      89,563
  Printing and supplies                204,614     162,360
  Professional and regulatory fees     205,772     196,434
  Other                                437,717     387,170
                                    ----------  ----------

    Total other operating expenses  $1,639,248  $1,383,589
                                    ==========  ==========
</TABLE>


                                    Page 31
<PAGE>
                    GATEWAY BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

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

Note  8.  Income  Taxes

          The  provision  for  income  taxes  in  the consolidated statements of
          income  for  the  years ended December 31, 2003 and 2002, includes the
          following:

<TABLE>
<CAPTION>
                                       2003        2002
                                    ----------  ----------
<S>                                 <C>         <C>

  Current tax expense:
    Federal                         $ 866,100   $ 729,700
    State                             112,800      66,100
  Deferred income taxes (benefit):
    Federal                          (128,425)   (149,712)
    State                             (16,398)     (8,359)
                                    ----------  ----------

  Provision for income taxes        $ 834,077   $ 637,729
                                    ==========  ==========
</TABLE>

          The  income tax provision is different than the expected tax provision
          computed  by  multiplying  income before income taxes by the statutory
          federal  income  tax  rates.  The  reasons  for this difference are as
          follows:

<TABLE>
<CAPTION>
                                                       2003       2002
                                                     ---------  ---------
<S>                                                  <C>        <C>

  Expected tax at statutory rates                    $818,000   $643,000
  Increase (decrease) resulting from tax effect of:
    Tax-exempt interest on municipal securities       (41,300)   (31,000)
    State income taxes, net of federal benefit         63,600     38,100
    Other                                              (6,223)   (12,371)
                                                     ---------  ---------

  Provision for income taxes                         $834,077   $637,729
                                                     =========  =========
</TABLE>

          The  components  of  the  Company's  deferred  income  tax  assets and
          liabilities  at  December  31,  2003  and  2002,  are  as  follows:

<TABLE>
<CAPTION>
                                         2003        2002
                                      ----------  ----------
<S>                                   <C>         <C>
  Deferred tax assets:
    Allowance for loan losses         $ 524,200   $ 386,000
    Stock options compensation          134,200      88,800
    Unrealized losses on securities      24,000           -
    Other                                60,435      41,264
                                      ----------  ----------

      Total deferred tax assets         742,835     516,064
                                      ----------  ----------

  Deferred tax liabilities:
    Accumulated depreciation           (216,781)   (167,162)
    Unrealized gains on securities            -    (190,111)
                                      ----------  ----------

      Total deferred tax liabilities   (216,781)   (357,273)
                                      ----------  ----------

  Net deferred tax assets             $ 526,054   $ 158,791
                                      ==========  ==========
</TABLE>


                                    Page 32
<PAGE>
                    GATEWAY BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

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

Note  9.  Deposits

          The  aggregate amount of time deposits in denominations of $100,000 or
          more  was  approximately $20,710,000 at December 31, 2003. At December
          31,  2003,  the  scheduled maturities of time deposits are as follows:

                    2004                            $50,318,334
                    2005  -  2006                    10,778,129
                    2007  -  2011                     1,615,129
                                                    -----------

                                                    $62,711,592
                                                    ===========

          The  Bank  held  related party deposits of approximately $3,250,000 at
          December  31,  2003.

Note  10. Financial  Instruments  With  Off-Balance-Sheet  Risk

          In the normal course of business, the Bank has outstanding commitments
          and  contingent  liabilities, such as commitments to extend credit and
          standby  letters of credit, which are not included in the accompanying
          financial  statements. The Bank's exposure to credit loss in the event
          of  nonperformance by the other party to the financial instruments for
          commitments  to  extend  credit  and  standby  letters  of  credit  is
          represented  by  the  contractual  or  notional  amount  of  those
          instruments.  The  Bank  uses  the same credit policies in making such
          commitments  as  it  does  for  instruments  that  are included in the
          balance sheet. At December 31, 2003, commitments under standby letters
          of  credit  and  undisbursed loan commitments aggregated approximately
          $24,948,000.

          Commitments  to  extend credit are agreements to lend to a customer as
          long  as  there  is  no  violation of any condition established in the
          contract.  Commitments  generally have fixed expiration dates or other
          termination  clauses  and  may require payment of a fee. Since many of
          the  commitments  are expected to expire without being drawn upon, the
          total  commitment  amounts  do  not  necessarily represent future cash
          requirements. The Bank evaluates each customer's creditworthiness on a
          case-by-case  basis.  The  amount  of  collateral  obtained, if deemed
          necessary  by  the  Bank  upon  extension  of  credit,  is  based  on
          management's credit evaluation. Collateral held varies but may include
          accounts  receivable,  inventory,  property  and  equipment,  and
          income-producing  commercial  properties.

          Standby  letters  of  credit are conditional commitments issued by the
          Bank  to  guarantee  the  performance  of a customer to a third party.
          Standby  letters  of  credit  generally have fixed expiration dates or
          other termination clauses and may require payment of a fee. The credit
          risk  involved in issuing letters of credit is essentially the same as
          that  involved  in  extending loan facilities to customers. The Bank's
          policy for obtaining collateral, and the nature of such collateral, is
          essentially  the same as that involved in making commitments to extend
          credit.


                                    Page 33
<PAGE>
                    GATEWAY BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

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


Note  10. Financial  Instruments  With  Off-Balance-Sheet  Risk  (continued)

          The  Bank  was required to perform on one financial guarantee in 2003,
          and  incurred  a  loss of $7,175. The Bank did not incur any losses on
          its  commitments  in  2002.

Note  11. Contingencies

          The  Bank  is  involved in certain claims arising from normal business
          activities. Management believes that those claims are without merit or
          that  the  ultimate  liability,  if  any, resulting from them will not
          materially  affect  the  Bank's  financial  position.

Note  12. Liquidity  and  Capital  Resources

          The  Company's  primary source of funds with which to pay principal or
          interest  on  its  indebtedness  is  the receipt of dividends from its
          subsidiary  bank.  Banking  regulations  limit the amount of dividends
          that  the Bank may pay without prior approval of the Bank's regulatory
          agency.

Note  13. Employee  Benefit  Plan

          The Bank has a 401(k) employee benefit plan covering substantially all
          employees  who  have completed one year of service and are 18 years of
          age  or  older.  The  annual  contribution  is  discretionary  and was
          $105,000  in  2003  and  $102,000  in  2002.

          During  2002  the  Bank  executed  agreements  to provide supplemental
          retirement  benefits  for certain key officers. Under the terms of the
          agreements,  the  Bank  will  provide quarterly payments for ten years
          following  retirement to the officers or their beneficiaries. The Bank
          accrues  the  liability for these benefits over the seven-year vesting
          period.  As  of  December  31,  2003  and  2002,  the  liability  was
          approximately  $106,000  and $52,000, respectively. The Bank purchased
          single  premium,  whole  life  insurance  policies  to  facilitate the
          funding  of these benefits. The Bank is the sole owner and beneficiary
          of such policies. As of December 31, 2003 and 2002, the cash surrender
          value  of  these  policies  was  approximately  $566,000 and $531,000,
          respectively.  These  amounts  are  classified  as other assets in the
          accompanying  consolidated  balance  sheets.


                                    Page 34
<PAGE>
                    GATEWAY BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

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


Note  14. Stock  Option  Plan

          The  Company  has a stock option plan that provides for both incentive
          stock  options  and  nonqualified stock options. The maximum number of
          common shares that can be issued or optioned under the plan is 200,000
          shares.  In  the  case  of incentive stock options, the exercise price
          shall  not  be  less  than 100 percent (110 percent for persons owning
          more  than  10  percent of the Company's outstanding common shares) of
          the  fair  market  value of the common shares on the date of grant. In
          the  case  of  nonqualified  stock  options, the purchase price may be
          equal  to, less than, or more than the fair market value of the common
          shares on the date of grant. All options have been granted at the fair
          market  value  of  the  common  shares  at  the  date of grant. If not
          exercised,  the  options  will  expire  from  2009  to  2011.

          A summary of activity in the Company's stock option plan for the years
          ended  December  31,  2003  and  2002,  is  as  follows:

<TABLE>
<CAPTION>
                                                                  Weighted
                                                                   Average
                                                        Number    Exercise
                                                      of Shares     Price
                                                      ----------  ---------
<S>                                                   <C>         <C>

  Unexercised options outstanding, December 31, 2001    170,010   $   12.08

    Stock options exercised                              (2,710)      12.00

    Stock options forfeited                              (1,000)      13.00
                                                      ----------

  Unexercised options outstanding, December 31, 2002    166,300       12.08

    Stock options exercised                             (11,130)      12.09

    Stock options forfeited                              (7,420)      12.20
                                                      ----------

  Unexercised options outstanding, December 31, 2003    147,750       12.07
                                                      ==========
</TABLE>

          Under  the  plan, options to purchase common shares vest beginning one
          year  from  the grant date on an equal incremental basis over a period
          of five years. At December 31, 2003, the number of options exercisable
          is  114,000.  The  range  of  exercise  prices  and  weighted-average
          remaining  contractual  life  of  outstanding  options under the stock
          option  plan  were  $12.00  to  $13.00  and  5.41 years, respectively.

          Under  SFAS  No.  123,  the fair value of stock options at the date of
          grant  is  charged  to  compensation  costs  over  the vesting period.
          Compensation costs recognized in the accompanying statements of income
          were  $119,584  in  2003  and  $149,409  in  2002.


                                    Page 35
<PAGE>
                    GATEWAY BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

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

Note  15. Other  Comprehensive  Income

          Other  comprehensive income consists of unrealized gains and losses on
          securities available for sale. A summary of other comprehensive income
          and  the related tax effects for the years ended December 31, 2003 and
          2002,  is  as  follows:

<TABLE>
<CAPTION>
                                                           Tax
                                           Before-Tax   (Expense)    Net of Tax
                                             Amount      Benefit       Amount
                                          ------------  ----------  ------------
<S>                                       <C>           <C>         <C>
  Year ended December 31, 2003:
    Unrealized holding gains and losses
      arising during the period           $  (337,750)  $ 128,345   $  (209,405)

    Less reclassification adjustment for
      gains realized in net income            225,705     (85,768)      139,937
                                          ------------  ----------  ------------

                                          $  (563,455)  $ 214,113   $  (349,342)
                                          ============  ==========  ============

  Year ended December 31, 2002:
    Unrealized holding gains and losses
      arising during the period           $   385,216   $(146,382)  $   238,834

    Less reclassification adjustment for
      gains realized in net income             23,216      (8,822)       14,394
                                          ------------  ----------  ------------

                                          $   362,000   $(137,560)  $   224,440
                                          ============  ==========  ============
</TABLE>

Note  16. Regulatory  Matters

          The  Bank  is  subject  to  various  regulatory  capital  requirements
          administered  by  the  federal  and state banking agencies. Failure to
          meet  minimum capital requirements can initiate certain mandatory--and
          possibly  additional  discretionary--actions  by  regulators  that, if
          undertaken,  could  have  a  direct  material  effect  on  the  Bank's
          financial  statements.  Under  capital  adequacy  guidelines  and  the
          regulatory  framework for prompt corrective action, the Bank must meet
          specific  capital guidelines that involve quantitative measures of the
          Bank's  assets,  liabilities,  and  certain off-balance-sheet items as
          calculated  under  regulatory accounting practices. The Bank's capital
          amounts  and  classification are also subject to qualitative judgments
          by  the  regulators  about  components,  risk  weightings,  and  other
          factors.

          Quantitative  measures  established  by  regulation  to ensure capital
          adequacy  require the Bank to maintain minimum amounts and ratios (set
          forth  in  the table below) of total and Tier I capital (as defined in
          the  regulations)  to risk-weighted assets (as defined), and of Tier I
          capital  (as  defined)  to  average  assets  (as  defined). Management
          believes,  as  of  December  31, 2003, that the Bank meets all capital
          adequacy  requirements  to  which  it  is  subject.


                                    Page 36
<PAGE>
                    GATEWAY BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

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

Note  16. Regulatory  Matters  (continued)

          As of December 31, 2003, the Bank had not received formal notification
          of  the  Bank's  status  under  the  regulatory  framework  for prompt
          corrective  action.  To  be  categorized as well-capitalized, the Bank
          must  maintain minimum total risk-based, Tier I risk-based, and Tier I
          leverage ratios as set forth in the following table. The Bank's actual
          capital  amounts  and  ratios  are also presented in the table. Dollar
          amounts  are  presented  in  thousands.

<TABLE>
<CAPTION>
                                                                          To  be  Well
                                                                       Capitalized  Under
                                                    For  Capital       Prompt  Corrective
                                    Actual        Adequacy Purposes     Action Provisions
                               ---------------  --------------------  ---------------------
                                Amount   Ratio    Amount     Ratio      Amount      Ratio
                               -------  ------  ---------  ---------  ---------  ----------
<S>                            <C>      <C>     <C>        <C>        <C>        <C>
At December 31, 2003:
  Total capital
    (to risk-weighted assets)  $15,335  12.18%  $  10,071      8.00%  $  12,588      10.00%
  Tier I capital
    (to risk-weighted assets)   13,761  10.93%      5,035      4.00%      7,553       6.00%
  Tier I capital
    (to average assets)         13,761   8.92%      6,169      4.00%      7,711       5.00%

At December 31, 2002:
  Total capital
    (to risk-weighted assets)  $11,821  11.24%  $   8,414      8.00%  $  10,518      10.00%
  Tier I capital
    (to risk-weighted assets)   10,530  10.01%      4,207      4.00%      6,311       6.00%
  Tier I capital
    (to average assets)         10,530   8.11%      5,192      4.00%      6,490       5.00%
</TABLE>

Note  17. Fair  Value  of  Financial  Instruments

          Fair  value  estimates  are made at a specific point in time, based on
          relevant  market  information  about  the  financial instrument. These
          estimates  do  not  reflect  any premium or discount that could result
          from  offering  for  sale  at one time the Bank's entire holdings of a
          particular  financial  instrument.  Because  no  market  exists  for a
          significant  portion  of  the Bank's financial instruments, fair value
          estimates  are  based  on  judgments  regarding  future  expected loss
          experience,  current  economic  conditions,  risk  characteristics  of
          various  financial instruments, and other factors. These estimates are
          subjective  in  nature; involve uncertainties and matters of judgment;
          and,  therefore,  cannot  be  determined  with  precision.  Changes in
          assumptions  could  significantly  affect  the  estimates.

          Fair  value  estimates  are  based  on  existing financial instruments
          without  attempting  to  estimate  the  value  of  anticipated  future
          business  and  the  value  of  assets  and  liabilities  that  are not
          considered  financial  instruments.  The  following  methods  and
          assumptions  were  used  to  estimate  the fair value of each class of
          financial  instruments:


                                    Page 37
<PAGE>
                    GATEWAY BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

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

Note  17. Fair  Value  of  Financial  Instruments  (continued)

          Cash  and  cash  equivalents:

          For  cash  and  cash  equivalents, the carrying amount is a reasonable
          estimate  of  fair  value.

          Securities:

          The  fair  value  of  securities  is  estimated  based  on  bid prices
          published  in  financial  newspapers  or  bid quotations received from
          securities dealers. The carrying value of Federal Home Loan Bank stock
          approximates  fair  value  based  on  the redemption provisions of the
          Federal  Home  Loan  Bank.

          Loans:

          The  fair  value  of loans is calculated by discounting scheduled cash
          flows  through  the estimated maturity using estimated market discount
          rates,  adjusted  for credit risk and servicing costs. The estimate of
          maturity  is  based  on historical experience with repayments for each
          loan  classification,  modified,  as  required,  by an estimate of the
          effect  of  current  economic  and  lending  conditions.

          Deposits:

          The  fair  value  of  deposits  with  no  stated  maturity,  such  as
          noninterest-bearing  demand deposits and NOW, savings and money market
          accounts,  is  equal  to the amount payable on demand at the reporting
          date. The fair value of time deposits is based on the discounted value
          of  contractual  cash  flows. The discount rate is estimated using the
          rates  currently offered for deposits of similar remaining maturities.

          Commitments  to  extend credit, letters of credit and lines of credit:

          The  fair  value  of commitments is estimated using the fees currently
          charged  to  enter  into  similar  agreements, taking into account the
          remaining  terms of the agreements and the present creditworthiness of
          the  counterparties.  For fixed-rate loan commitments, fair value also
          considers  the difference between current levels of interest rates and
          the  committed  rates.

          Securities  sold  under  agreements  to  repurchase:

          The  estimated  fair  value  of these liabilities, which are extremely
          short  term,  approximates  their  carrying  value.

          Long-term  obligations  and  Federal  Home  Loan  Bank  advances:

          Rates  currently available to the Bank for debt with similar terms and
          remaining  maturities  are used to estimate the fair value of existing
          debt.


                                    Page 38
<PAGE>
                    GATEWAY BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

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

Note  17. Fair  Value  of  Financial  Instruments  (continued)

          The  carrying  amount and estimated fair value of the Bank's financial
          instruments  at  December  31,  2003  and  2002,  are  as  follows (in
          thousands):

<TABLE>
<CAPTION>
                                               2003                  2002
                                       ----------------------  ----------------------
                                       Carrying    Estimated   Carrying    Estimated
                                        Amount    Fair Value    Amount    Fair Value
                                       ---------  -----------  ---------  -----------
<S>                                    <C>        <C>          <C>        <C>
Assets:
  Cash and due from banks              $   8,989  $     8,989  $   7,049  $     7,049
  Federal funds sold                       4,340        4,340      7,450        7,450
  Securities                              33,693       33,693     29,374       29,374
  Federal Home Loan Bank stock               298          298        260          260
  Loans, net                             116,893      116,325     92,606       92,653

Liabilities:
  Noninterest-bearing demand deposits     12,309       12,309      7,816        7,816
  NOW accounts                            55,513       55,513     37,271       37,271
  Savings and money market accounts       17,548       17,548     13,621       13,621
  Time deposits                           62,712       63,284     63,283       64,240
  Securities sold under agreements
    to repurchase                          3,206        3,206      3,302        3,302
  Long-term obligations                    3,609        3,609        800          800
  Federal Home Loan Bank advances          2,500        2,500      4,000        4,000
  Unrecognized financial instruments
    (net of contract amount):
      Commitments to extend credit             -            -          -            -
      Letters of credit                        -            -          -            -
      Lines of credit                          -            -          -            -
</TABLE>

Note  18. Lease  Obligations

          The  Bank  leases  the ground on which its main office is built from a
          related party. Rent expenses were $25,372 in 2003 and $24,994 in 2002.
          The  20-year lease requires the Bank to pay annual rent as adjusted by
          inflation.  The Bank has three options to renew the lease for 10 years
          for each option. Future minimum rentals under the lease agreement are:

                               2004                  $  25,978
                               2005                     25,978
                               2006                     25,978
                               2007                     25,978
                               2008                     25,978
                               Thereafter              181,846
                                                       -------

                                                      $311,736
                                                      ========


                                    Page 39
<PAGE>
                    GATEWAY BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

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

Note  19.   Condensed  Parent  Information

<TABLE>
<CAPTION>
                                  BALANCE  SHEETS
--------------------------------------------------------------------------------
                                                                                     2003          2002
                                                                                 ------------  ------------
<S>                                                                              <C>           <C>
ASSETS
  Cash                                                                           $   695,113   $   255,118
  Investment in subsidiary                                                        13,722,094    10,840,346
  Other assets                                                                       372,998       113,355
                                                                                 ------------  ------------

      Total assets                                                               $14,790,205   $11,208,819
                                                                                 ============  ============

LIABILITIES AND STOCKHOLDERS' EQUITY
  Note payable                                                                   $ 3,609,000   $   800,000
  Other liabilities                                                                   21,840        12,519
                                                                                 ------------  ------------
      Total liabilities                                                            3,630,840       812,519
  Stockholders' equity                                                            11,159,365    10,396,300
                                                                                 ------------  ------------

      Total liabilities and stockholders' equity                                 $14,790,205   $11,208,819
                                                                                 ============  ============

                              STATEMENTS OF INCOME
-------------------------------------------------------------------------------
INCOME
  Interest income                                                                $     2,353   $     4,776

EXPENSES
  Interest expense                                                                    35,474        42,347
  Other operating expenses                                                           183,519       176,789
                                                                                 ------------  ------------

Loss before equity in undistributed earnings of subsidiary                          (216,640)     (214,360)

Equity in undistributed earnings of subsidiary                                     1,706,090     1,375,583

Income tax benefits                                                                   82,323        93,471
                                                                                 ------------  ------------

      Net income                                                                 $ 1,571,773   $ 1,254,694
                                                                                 ============  ============

                      STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                                                     $ 1,571,773   $ 1,254,694
  Adjustments to reconcile net income to net cash used in operating activities:
    Equity in undistributed income of subsidiary                                  (1,706,090)   (1,375,583)
    Other                                                                           (130,738)       68,862
                                                                                 ------------  ------------
      Net cash used in operating activities                                         (265,055)      (52,027)
                                                                                 ------------  ------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Dividends from subsidiary                                                          225,000       200,000
  Investment in subsidiary                                                        (1,750,000)            -

CASH FLOWS FROM FINANCING ACTIVITIES
  Principal payments on long-term obligations                                     (1,100,000)     (200,000)
  Proceeds from long-term obligations                                              3,909,000             -
  Repurchases of common stock                                                       (713,510)            -
  Proceeds from stock options exercised                                              134,560        32,520
                                                                                 ------------  ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                 439,995       (19,507)

CASH AND CASH EQUIVALENTS, beginning of year                                         255,118       274,625
                                                                                 ------------  ------------

CASH AND CASH EQUIVALENTS, end of year                                           $   695,113   $   255,118
                                                                                 ============  ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
  Cash paid (received) during the year for:
    Interest on long-term obligations                                            $    35,498   $    40,305
    Income taxes                                                                     (36,681)      (17,567)
                                                                                 ============  ============
</TABLE>


                                    Page 40
<PAGE>
CORPORATE  INFORMATION

There is no established trading market for the Company's shares, which have been
traded  inactively  in private transactions.  Therefore, no reliable information
is  available as to trades of shares of the Company's common stock, or as to the
prices  at  which  such  shares have traded. Management has reviewed the limited
information  available  as to the ranges at which shares of the Company's common
stock  have  sold.  The  following  data  regarding  shares  is  provided  for
information  purposes only, and should not be viewed as indicative of the actual
or  market  value  of  shares  of  the  Company's  common  stock.

<TABLE>
<CAPTION>
               Estimated Price Range Per Share
               -------------------------------
                     2003            2002
                --------------  --------------
                 High    Low     High    Low
                ------  ------  ------  ------
<S>             <C>     <C>     <C>     <C>
First Quarter   $14.00  $14.00  $13.00  $12.00
Second Quarter   17.72   17.72   13.00   13.00
Third Quarter    18.00   16.29   12.00   12.00
Fourth Quarter   17.72   17.72   14.00   13.43
</TABLE>

The  Company's common stock was held by approximately 612 shareholders of record
at  December  31,  2003.

DIVIDENDS

The  Bank  is  subject to restrictions on the payment of dividends under Georgia
law and the regulations of the Department of Banking and Finance. The Company is
also  subject  to  limits  on payment of dividends by the rules, regulations and
policies  of  federal  banking  authorities.  No assurance can be given that any
dividends  will  be  declared by the Company in the future, or if declared, what
the  amount  should be or whether such dividends would continue. Future dividend
policy will depend on the Bank's earnings, capital position, financial condition
and  other  factors.  The  Company  has  not  paid  any  dividends  to  date.

FORM  10-KSB

A  copy  of  the  Company's  2003  Annual  Report on Form 10-KSB, filed with the
Securities  and  Exchange  Commission,  is  available  at  no  charge  to  each
shareholder  upon  written  request  to:

Jeff Hensley
Gateway Bancshares, Inc.
5102 Alabama Highway
Ringgold, Georgia 30736

General Counsel
Powell, Goldstein, Frazer & Murphy LLP
Atlanta, Georgia

Independent Auditors
Hazlett, Lewis & Bieter, PLLC
Chattanooga, Tennessee


                                    Page 41
<PAGE>