EXHIBIT 13.1

                           GATEWAY  BANCSHARES,  INC.

                                FINANCIAL  REVIEW

                                      2002


<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,  2002  (the  2002  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 2002 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,  Tennessee and Dalton, Georgia.  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  $1,254,694  for  2002 represents an increase of
$605,414 from the Company's net income in 2001 of $649,280.  The increase in net
income  resulted  primarily  from higher net interest margins in 2002.  Earnings
per  share  was  $1.84  in  2002  compared  with  $0.96  in  2001.


                                     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 $4,650,824 in 2002, as
compared  to $3,650,173 in 2001, representing an increase of $1,000,651, or 27%.
This  increase  was caused primarily by (1) a lower cost of funds throughout the
year  and  (2) continued growth in the Bank's loan portfolio, which provides the
highest  rate  of interest income.  Interest rates were much more stable in 2002
as  compared to the dramatic declines in 2001.  As a result, the Bank's interest
income  was  more  predictable  and  the  Bank  was  able to maintain higher net
interest  margins  in  2002.  During  2002  the prime interest rate dropped from
4.75% to 4.25%.  During 2001 the prime interest rate dropped from 9.5% to 4.75%.
At  December  31,  2002,  $28,807,105  (30.7%)  of the Bank's loans had variable
interest  rates that adjusted with changes in the prime interest rate.  Interest
and  fees  on  loans  decreased from $6,835,135 in 2001 to $6,398,871 in 2002 (a
decrease  of  6.4%).

Interest earned on securities decreased $175,145 (13.2%) from $1,326,683 in 2001
to  $1,151,538  in 2002.  The decrease is due primarily to a decline in interest
rates  on  securities.  Total  securities  at year-end increased $1,878,812 from
2001  to  2002.  During  2002  a  slightly smaller portion of the Bank's earning
assets  were  in  federal  funds  sold,  and  a  slightly  larger portion was in
securities,  which  typically  earn  a  higher  interest  rate.

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 2002 was 4.12% compared with a net interest margin of 3.54%
in  2001.  This  increase  was directly related to greater stability in interest
rates  in 2002, which allowed the Bank to adjust the average rate paid for funds
more  timely  in  relation  to  the  yield  on  earning  assets.

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 2002 was 3.71% compared to a net interest spread of
3.04%  in  2001.

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

                                                   2002      2001
                                                   -----     -----

Rate  earned  on  earnings  assets                 6.65%     8.01%
Rate  paid  on  borrowed  funds                    2.94%     4.97%
Interest  rate  spread                             3.71%     3.04%
Net  yield  on  earnings  assets                   4.12%     3.54%


                                     Page 2
<PAGE>
INTEREST  EXPENSE

Total  interest  expense decreased $1,691,386 (36.5%) from $4,637,003 in 2001 to
$2,945,617  in  2002.  This  decrease  resulted  from the significant decline in
rates  offered  on  interest-bearing  deposits that was implemented prior to the
beginning of 2002.  The magnitude of re-pricing of interest-bearing deposits was
much  less during 2002 than during the rapid declines that occurred in 2001.  As
a  result,  interest  expense  on  interest-bearing  deposits  decreased  from
$4,467,821  in  2001  to  $2,752,061  in  2002.

NONINTEREST  INCOME

Noninterest  income  for  2002  and  2001  totaled  $1,481,134  and  $967,514,
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 mortgage loan fees generated from mortgage loan
refinancings and growth in the Bank's deposit base.

                                                    2002           2001
                                                -----------     ---------

Service charge on deposits                      $   750,705     $ 392,064
Mortgage loan fees                                  404,345       349,057
Investment securities gains                          23,216        46,829
Other                                               302,868       179,564
                                                -----------     ---------

                                                $ 1,481,134     $ 967,514
                                                ===========     =========

NONINTEREST  EXPENSES

Noninterest  expenses  totaled  $3,803,535  in  2002  and  $3,172,821  in  2001.
Salaries  and  benefits  increased  $511,323  (29.7%)  to  $2,233,129.  The data
processing expense increase of $42,447 (15.4%) is directly related to the growth
in customer accounts.  Furniture and equipment expense decreased $22,359 (10.8%)
primarily due to lower depreciation.  Professional and regulatory fees increased
$50,033  (34.2%)  due  to an increase in legal and consulting services needed by
the  Bank.

                                                     2002            2001
                                                 -----------     -----------

Salaries and employee benefits                   $ 2,233,129     $ 1,721,806
Occupancy expenses                                   186,817         185,732
Advertising and marketing                             45,536          63,145
Data processing                                      317,653         275,206
Furniture and equipment expense                      184,873         207,232
Postage, freight and express                          89,563          69,886
Printing and supplies                                162,360         152,248
Professional and regulatory fees                     196,434         146,401
Other                                                387,170         351,165
                                                 -----------     -----------

                                                 $ 3,803,535     $ 3,172,821
                                                 ===========     ===========

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  2002  were  approximately $114,172,000 or 94.5% of
average  total  assets compared to $103,476,000 or 93.1% of average total assets
in 2001.  The mix of average earning assets comprised the following percentages:

                                                            2002       2001
                                                           ------     ------

Federal funds sold                                           2.5%       2.8%
Securities                                                  25.2%      23.5%
Loans                                                       72.3%      73.7%
                                                           ------     ------

                                                           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,  2002, the Bank's total loans were $93,897,207 as compared to $79,616,337 at
the  end  of  2001, representing an increase of $14,280,870 (17.9%).  The Bank's
increase  in  average loan balances during the year was $6,335,000 (8.3%), while
the  growth  in the Bank's average earning assets was $10,696,000 (10.3%).  As a
result,  loans  were  a  slightly  smaller portion of the Bank's average earning
assets.  In  2002  average net loans represented 72.3% of average earning assets
and  68.3%  of average total assets, compared to 73.7% of average earning assets
and  68.6%  of  average  total  assets  in  2001.  The  close proximity of these
percentages  reflects  a  proper  balance  of loan growth and growth in customer
deposits.  The  ratio  of  total loans to total deposits increased from 70.4% at
December  31,  2001,  to  77%  at  December  31,  2002.

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 $2,772,000 at December 31, 2002.

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, 2002, commitments under standby letters of
credit  and  undisbursed  loan  commitments  aggregated $13,677,000.  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, 2002 and 2001 (in thousands):

<TABLE>
<CAPTION>
                                                      2002    2001
                                                    -------  -------
<S>                                                 <C>      <C>

Nonaccruing loans                                   $   111  $   101

Loans past due 90 days or more                          185      151

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

Total nonperforming loans                               296      252

Other real estate                                       212      117
                                                    -------  -------

Total nonperforming assets                          $   508  $   369
                                                    =======  =======

Ratios:

Loan loss allowance to total nonperforming assets    2.5413   2.6992
                                                    =======  =======

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

Total nonperforming assets to total assets           0.0036   0.0029
                                                    =======  =======
</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 $1,291,097 in the
allowance  for  loan losses at December 31, 2002 (1.37% of total net outstanding
loans  at  that  date) was adequate to absorb known risks in the portfolio based
upon  the  Company's historical experience.  No assurance can be given, however,
that  increased  loan volume, adverse economic conditions or other circumstances
will  not  result  in  increased  losses  in  the  Company's  loan  portfolio.

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,  2002  and  2001.


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


                                                                         2002          2001
                                                                     ------------  -------------
                                                                        (amounts in thousands)
<S>                                                                  <C>           <C>
Balance, beginning of period                                         $       996   $        930

Total loans charged off                                                     (149)          (422)
Recoveries on loans previously charged off                                     8              3
                                                                     ------------  -------------

Net loans charged off                                                       (141)          (419)
                                                                     ------------  -------------

Provision for loan losses                                                    436            485
                                                                     ------------  -------------

Balance, end of period                                               $     1,291   $        996
                                                                     ============  =============

Loans, net of unearned income, at end of period                      $    93,897   $     79,616
                                                                     ============  =============

Average loans, net of unearned income                                $    82,598   $     76,263
                                                                     ============  =============

Ratios:

Allowance at end of period to loans, net of unearned income                 1.37%          1.25%

Allowance at end of period to average loans, net of unearned income         1.56%          1.31%

Net charge-offs to average loans, net of unearned income                    0.17%          0.55%

Net charge-offs to allowance at end of period                              10.92%         42.07%

Recoveries to prior year charge-offs                                        1.91%          2.38%
</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, 2002   December 31, 2001
                                        ------------------  ------------------
                                                  Percent             Percent
                                        Amount   of Total   Amount   of Total
                                        -------  ---------  -------  ---------
<S>                                     <C>      <C>        <C>      <C>
Domestic loans (1):
  Commercial and industrial             $   822      63.7%  $   609      61.1%
  Real estate - construction and other      196      15.2%      154      15.5%
  Consumer                                  273      21.1%      233      23.4%
                                        -------  ---------  -------  ---------

                                        $ 1,291     100.0%  $   996     100.0%
                                        =======  =========  =======  =========
</TABLE>

(1)  The Company had no foreign loans.


                                     Page 6
<PAGE>
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,  2002, securities available for sale were $29,374,441, compared to
$27,495,629  at  year-end  2001.

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  $260,000  at  December  31,  2002  and  2001.

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  2002  gross  investment  securities sales were approximately $2,743,000,
representing  9.5% of the average portfolio for the year.  Gains associated with
the  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.  During 2001
gross  investment  securities  sales were approximately $7,273,000, representing
30% of the average portfolio for the year.  Gains associated with the 2001 sales
were  $52,980,  while losses totaled $6,151.  The net gains of $46,829 represent
4.8%  of  noninterest  income.  Gross  unrealized  gains  in  the portfolio were
$218,122,  and  unrealized  losses  were  $79,829  at  year-end  2001.

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 premium and
interest-only  strip  securities.  The  Bank's  purchase  of  mortgage-backed
securities  during  2002  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  $10,680,000  at  year-end 2001 to
$7,450,000  at  year-end  2002.  Average  federal  funds  sold  for  2002  was
approximately  $2,838,000  or  2.5%  of  average  earning  assets, compared with
approximately  $2,921,000  or  2.8%  of  average  earning  assets for 2001.  The
relative  consistency  of these percentages are a result of active management of
the  Company's  liquidity  needs.

DEPOSITS

The  Bank's  primary source of funds is derived from deposits of Bank customers.
Average  deposits  increased  7.7%  from  approximately  $98,406,000  in 2001 to
approximately  $105,958,000  in 2002.  At December 31, 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.  At  year-end  2001,  total  deposits  were
$113,109,389,  of  which  $101,399,383  (89.6%)  were  interest-bearing  and
$11,710,006  (10.4%)  were  noninterest-bearing.  Management  has  identified
deposits  of  approximately $10,100,000 at December 31, 2002 that are considered
volatile.  These  deposits  consist  of  property tax deposits by Catoosa County
that  were withdrawn in early 2003.  Management continues to develop its deposit
products  and emphasizes high-quality customer service to grow the deposit base.


                                     Page 7
<PAGE>
SHAREHOLDERS'  EQUITY

Shareholders' equity increased $1,661,063 from December 31, 2001 to December 31,
2002.  This  increase  is  primarily  due  to  net earnings of $1,254,694 and an
increase  in  unrealized gains on securities available for sale of $224,440, net
of  deferred  taxes.  Activity  in  the  stock  option  plan  also  increased
stockholders'  equity.

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
$24,641,000  or  26.2%  of  the  total  loan portfolio at December 31, 2002, and
securities  maturing  in  one  year  or  less equaled $6,847,332 or 23.3% 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 $5,750,000.  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 $8,906,000.
The  Bank  has  drawn $4,000,000 from the available credit with the Federal Home
Loan  Bank.  See  the  Notes  to  Consolidated  Financial  Statements herein for
additional  information.


                                     Page 8
<PAGE>
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  $1,000,000  of  additional  capital  in  the  Bank  in  June  2000.

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
$10,530,000  at  December  31,  2002.  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  $11,821,000  at  year-end  2002.  The  percentage  ratios, as
calculated  under  the  guidelines  were  10.0%  and  11.2% for Tier I and Total
Risk-based  capital,  respectively,  at  year-end  2002.  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, 2002, 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,
2002  and  2001,  under  the  year-end  2001  requirements.

<TABLE>
<CAPTION>
                                                      2002       2001
                                                    ---------  --------
<S>                                                 <C>        <C>
Tier I Capital                                      $ 10,530   $ 9,354
Tier II Capital                                        1,291       996
                                                    ---------  --------

Total Qualifying Capital                            $ 11,821   $10,350
                                                    =========  ========

Risk Adjusted Total Assets (including off-balance
  sheet exposures)                                  $105,177   $88,870
                                                    =========  ========

Tier I Risk-Based Capital Ratio                         10.0%     10.5%

Total Risk-Based Capital Ratio                          11.2%     11.7%

Leverage Ratio                                           8.1%      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,  2002.


                                     Page 9
<PAGE>
<TABLE>
<CAPTION>
                                INTEREST RATE SENSITIVITY ANALYSIS

                                        0-30      31-90    91-365       1-5     Over 5
                                        Days      Days      Days       Years     Years    Total
                                      ---------  -------  ---------  ---------  -------  --------
                                                        (in thousands)
<S>                                   <C>        <C>      <C>        <C>        <C>      <C>
Interest-earning assets (1)
---------------------------
Loans                                 $  6,910   $44,149  $  9,478   $ 33,143   $   217  $ 93,897
Securities:
   Taxable                                 250     1,060     5,615      7,002    12,163    26,090
   Tax exempt                                -         -         -      2,354       930     3,284
Federal funds sold                       7,450         -         -          -         -     7,450
                                      ---------  -------  ---------  ---------  -------  --------
                                        14,610    45,209    15,093     42,499    13,310   130,721
                                      ---------  -------  ---------  ---------  -------  --------
Interest-bearing liabilities (2)(3)
-----------------------------------
Demand deposits                         15,029    15,029    15,029          -         -    45,087
Money market accounts                    1,535     1,536     1,536          -         -     4,607
Savings deposits                         3,004     3,005     3,005          -         -     9,014
Time deposits                            5,383     6,703    17,824     33,373         -    63,283
Repurchase agreements                    3,202         -         -          -         -     3,202
Long-term borrowings                         -         -     1,500      2,300     1,000     4,800
                                      ---------  -------  ---------  ---------  -------  --------
                                        28,153    26,273    38,894     35,673     1,000   129,993
                                      ---------  -------  ---------  ---------  -------  --------

Interest sensitivity gap              $(13,543)  $18,936  $(23,801)  $  6,826   $12,310  $    728
                                      =========  =======  =========  =========  =======  ========

Cumulative interest sensitivity gap   $(13,543)  $ 5,393  $(18,408)  $(11,582)  $   728
                                      =========  =======  =========  =========  =======

Ratio of interest-earning assets to
   interest-bearing liabilities           0.52      1.72      0.39       1.19     13.31
                                      =========  =======  =========  =========  =======
Cumulative ratio                          0.52      1.10      0.80       0.91      1.01
                                      =========  =======  =========  =========  =======

Ratio of cumulative gap to total
   interest-bearing assets               (0.10)     0.04     (0.14)     (0.09)     0.01
                                      =========  =======  =========  =========  =======
</TABLE>


---------------
(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.

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
$13,543,000.  For  the  first  365  days,  interest-bearing  liabilities  exceed
earning  assets  by  $18,408,000.  During this one-year time frame, 71.8% of all
interest-bearing  liabilities  will  reprice  compared  to  57.3%  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
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.


                                    Page 10
<PAGE>
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 2002.  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 11
<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 12
<PAGE>
                    GATEWAY BANCSHARES, INC. AND SUBSIDIARY

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS




                                                                           Page
                                                                           ----

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS                          14

FINANCIAL STATEMENTS

   Consolidated balance sheets                                              15
   Consolidated statements of income                                        16
   Consolidated statements of changes in stockholders' equity               17
   Consolidated statements of cash flows                                    18
   Notes to consolidated financial statements                              19-35



                                    Page 13
<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, 2002 and 2001, 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, 2002 and 2001, 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.

     As  discussed  in  Note  1  to  the  consolidated financial statements, the
Company  changed  its  method  of  accounting  for  stock  options  in  2002.


                                               /s/ Hazlett, Lewis & Bieter, PLLC
Chattanooga, Tennessee
February 21, 2003


                                    Page 14
<PAGE>
<TABLE>
<CAPTION>
                    GATEWAY BANCSHARES, INC. AND SUBSIDIARY

                          CONSOLIDATED BALANCE SHEETS
                           December 31, 2002 and 2001

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

                                                           2002          2001
                                                       ------------  ------------
<S>                                                    <C>           <C>
      ASSETS

Cash and due from banks                                $  7,049,445  $  4,283,268
Federal funds sold                                        7,450,000    10,680,000
                                                       ------------  ------------

      Total cash and cash equivalents                    14,499,445    14,963,268

Securities available for sale                            29,374,441    27,495,629
Federal Home Loan Bank stock, at cost                       260,000       260,000
Loans, net of allowance for loan losses of $1,291,097
  in 2002 and $996,301 in 2001                           92,606,110    78,620,036
Premises and equipment                                    2,930,060     3,029,915
Accrued interest receivable                                 723,943       772,557
Other assets                                              1,077,919       391,863
                                                       ------------  ------------

      Total assets                                     $141,471,918  $125,533,268
                                                       ============  ============

      LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits:
  Noninterest-bearing demand deposits                  $  7,816,038  $ 11,710,006
  NOW accounts                                           37,271,002    23,556,092
  Money market accounts                                   4,607,482     9,959,876
  Savings deposits                                        9,013,671     8,056,405
  Time deposits                                          63,282,805    59,827,010
                                                       ------------  ------------

      Total deposits                                    121,990,998   113,109,389

Securities sold under agreements to repurchase            3,202,343             -
Note payable                                                800,000     1,000,000
Federal Home Loan Bank advances                           4,000,000     2,000,000
Accrued interest payable                                    288,629       375,336
Other liabilities                                           793,648       313,306
                                                       ------------  ------------

      Total liabilities                                 131,075,618   116,798,031
                                                       ------------  ------------

Stockholders' equity:
  Common stock, $5 par value; 10,000,000
    shares authorized; shares outstanding of
    681,758 in 2002 and 679,048 in 2001                   3,408,790     3,395,240
  Additional paid-in capital                              3,610,206     3,441,827
  Retained earnings                                       3,067,123     1,812,429
  Accumulated other comprehensive income                    310,181        85,741
                                                       ------------  ------------

      Total stockholders' equity                         10,396,300     8,735,237
                                                       ------------  ------------

      Total liabilities and stockholders' equity       $141,471,918  $125,533,268
                                                       ============  ============
</TABLE>


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


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

                        CONSOLIDATED STATEMENTS OF INCOME
                     Years Ended December 31, 2002 and 2001

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

                                                            2002        2001
                                                         ----------  ----------
<S>                                                      <C>         <C>
INTEREST INCOME
  Loans                                                  $6,398,871  $6,835,135
  Securities                                              1,151,538   1,326,683
  Other                                                      46,032     125,358
                                                         ----------  ----------

    Total interest income                                 7,596,441   8,287,176

INTEREST EXPENSE                                          2,945,617   4,637,003
                                                         ----------  ----------

    Net interest income                                   4,650,824   3,650,173

Provision for loan losses                                   436,000     485,000
                                                         ----------  ----------

    Net interest income after provision for loan losses   4,214,824   3,165,173
                                                         ----------  ----------

NONINTEREST INCOME
  Service charges                                           750,705     392,064
  Mortgage loan fees                                        404,345     349,057
  Other noninterest income                                  326,084     226,393
                                                         ----------  ----------

    Total noninterest income                              1,481,134     967,514
                                                         ----------  ----------

NONINTEREST EXPENSES
  Salaries and employee benefits                          2,233,129   1,721,806
  Occupancy expense                                         186,817     185,732
  Other operating expenses                                1,383,589   1,265,283
                                                         ----------  ----------

    Total noninterest expenses                            3,803,535   3,172,821
                                                         ----------  ----------

    Income before income taxes                            1,892,423     959,866

Income taxes                                                637,729     310,586
                                                         ----------  ----------

    Net income                                           $1,254,694  $  649,280
                                                         ==========  ==========

EARNINGS PER COMMON SHARE, BASIC AND DILUTED

  Net income per share                                   $     1.84  $     0.96

  Basic weighted average shares outstanding                 681,624     679,048

  Diluted earnings per common share                      $     1.81  $     0.95

  Diluted weighted average shares outstanding               694,543     686,001
</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 CHANGES IN STOCKHOLDERS' EQUITY
                                              Years Ended December 31, 2002 and 2001

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



                                                                                                                      Accumulated
                                                                    Total                   Additional                   Other
                                                Comprehensive   Stockholders'     Common      Paid-in     Retained   Comprehensive
                                                    Income          Equity        Stock       Capital     Earnings       Income
                                                --------------  --------------  ----------  ----------  -----------  -------------
<S>                                             <C>             <C>             <C>         <C>         <C>          <C>
BALANCE, December 31, 2000                                      $    7,802,312  $3,395,240  $3,357,637  $ 1,163,149  $   (113,714)

  Stock options compensation                                            84,190           -      84,190            -             -

  Comprehensive income:
    Net income                                  $      649,280         649,280           -           -      649,280             -

    Other comprehensive income, net of tax:
      Unrealized holding gains (losses) on
         securities available for sale, net of
         reclassification adjustment                   199,455         199,455           -           -            -       199,455
                                                --------------  --------------  ----------  ----------  -----------  -------------

    Total comprehensive income                  $      848,735
                                                ==============


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:
    Net income                                  $    1,254,694       1,254,694           -           -    1,254,694             -

    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
                                                                ==============  ==========  ==========  ==========  ==============
</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 CASH FLOWS
                          Years Ended December 31, 2002 and 2001


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

                                                                  2002           2001
                                                              -------------  -------------
<S>                                                           <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                                  $  1,254,694   $    649,280
  Adjustments to reconcile net income to net
    cash provided by operating activities:
      Depreciation                                                 177,670        210,755
      Provision for loan losses                                    436,000        485,000
      Stock options compensation                                   149,409         84,190
      Deferred income taxes                                       (158,071)       (24,414)
      Net amortization on securities available for sale            255,055         75,078
      Change in operating assets and liabilities:
        Accrued interest receivable                                 48,614        171,918
        Other assets                                              (440,887)        46,737
        Accrued interest payable                                   (86,707)      (183,948)
        Other liabilities                                          342,782         77,551
                                                              -------------  -------------

          Net cash provided by operating activities              1,978,559      1,592,147
                                                              -------------  -------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of securities available for sale                    (18,056,362)   (26,187,246)
  Proceeds from securities available for sale                   16,307,711     24,168,381
  Net increase in loans                                        (14,532,388)    (7,806,482)
  Purchase of premises and equipment                               (77,815)      (114,632)
                                                              -------------  -------------

          Net cash used in investing activities                (16,358,854)    (9,939,979)
                                                              -------------  -------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Net increase in deposits                                       8,881,609     16,132,104
  Advances from Federal Home Loan Bank                           2,000,000              -
  Increase in securities sold under agreements to repurchase     3,202,343              -
  Proceeds from stock options exercised                             32,520              -
  Principal payments on note payable                              (200,000)             -
                                                              -------------  -------------

          Net cash provided by financing activities             13,916,472     16,132,104
                                                              -------------  -------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS              (463,823)     7,784,272

CASH AND CASH EQUIVALENTS, beginning of year                    14,963,268      7,178,996
                                                              -------------  -------------

CASH AND CASH EQUIVALENTS, end of year                        $ 14,499,445   $ 14,963,268
                                                              =============  =============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
  Cash paid during the year for:
    Interest                                                  $  3,032,324   $  4,820,951
    Income taxes                                                   602,405        337,496
                                                              =============  =============
</TABLE>


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


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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001


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

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 19
<PAGE>
                    GATEWAY BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001


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

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 20
<PAGE>
                    GATEWAY BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001


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

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 21
<PAGE>
                    GATEWAY BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001


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

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.  No  stock-based  employee
          compensation  was  reflected  in  previously  issued  results,  as all
          options  granted  under  the  plan  had an exercise price equal to the
          market  value  of  the  underlying  common stock on the date of grant.
          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.  All prior periods presented have
          been  restated  to  reflect the compensation cost that would have been
          recognized had the recognition provisions of SFAS No. 123 been applied
          to  all  awards  granted  to  employees  after  January  1,  1995.

          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.

          New  Accounting  Standards:

          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.
          The  Company  has  voluntarily  elected  to  change  to the fair value
          method.  The  accompanying  consolidated  financial statements include
          stock  options  compensation  expense and the required disclosures are
          provided.


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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001


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

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, 2002
          and  2001,  are  as  follows:

<TABLE>
<CAPTION>
                                                        2002
                                 ---------------------------------------------------
                                                 Gross        Gross
                                  Amortized   Unrealized    Unrealized     Market
                                    Cost         Gains        Losses        Value
                                 -----------  -----------  ------------  -----------
<S>                              <C>          <C>          <C>           <C>
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
                                 ===========  ===========  ============  ===========

                                                       2001
                                 ---------------------------------------------------
                                                 Gross        Gross
                                  Amortized   Unrealized    Unrealized     Market
                                    Cost         Gains        Losses        Value
                                 -----------  -----------  ------------  -----------
Securities available for sale:
  Securities of U.S. Government
    agencies and corporations    $13,430,704  $   103,191  $   (44,407)  $13,489,488

  Mortgage-backed securities       9,373,666       78,990       (8,553)    9,444,103

  Municipal securities             2,018,803        1,704      (26,869)    1,993,638

  Corporate debt securities        2,034,163       29,737            -     2,063,900

  Other securities                   500,000        4,500            -       504,500
                                 -----------  -----------  ------------  -----------

                                 $27,357,336  $   218,122  $   (79,829)  $27,495,629
                                 ===========  ===========  ============  ===========
</TABLE>


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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001


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

Note 2.   Securities (continued)

          The  amortized  cost  and  market  value of securities at December 31,
          2002,  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.

                                                 Securities Available for Sale
                                               ---------------------------------
                                                   Amortized        Estimated
                                                     Cost           Fair Value
                                               -----------------  --------------
             Due in one year or less           $       6,751,204  $    6,847,332
             Due after one year to five years          9,191,858       9,381,238
             Due from five years to ten years          4,830,012       4,948,622
             Due after ten years                       8,101,076       8,197,249
                                               -----------------  --------------

                                               $      28,874,150  $   29,374,441
                                               =================  ==============

          Certain securities transactions for the years ended December 31, 2002
          and 2001, are as follows:


                                                         2002        2001
                                                      ----------  ----------

             Proceeds from sales of securities        $2,743,385  $7,273,381
             Gross gains realized                         24,750      52,980
             Gross losses realized                         1,534       6,151


          Securities  with  a  book  value  of  approximately  $18,010,000  and
          $12,655,000  at December 31, 2002 and 2001, 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, 2002 and 2001, is as follows:

                                                          2002         2001
                                                       -----------  ----------

             Balance, beginning of year                $  996,301   $ 930,473
               Provision charged to operating expense     436,000     485,000
               Recoveries of loans charged off              8,150       3,413
               Loans charged off                         (149,354)   (422,585)
                                                       -----------  ----------

             Balance, end of year                      $1,291,097   $ 996,301
                                                       ===========  ==========


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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001


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

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

          At  December  31,  2002  and  2001,  the  Bank's  loans consist of the
          following  (in  thousands):

                                                 2002      2001
                                               --------  --------

             Commercial and industrial loans   $29,849   $25,517
             Real estate loans - construction    9,033     6,976
             Real estate loans - other          44,669    37,783
             Consumer                           10,251     9,267
             Other                                  95        73
                                               --------  --------
               Total loans                      93,897    79,616

             Less - Allowance for loan losses   (1,291)     (996)
                                               --------  --------

             Net loans                         $92,606   $78,620
                                               ========  ========

          The  Bank's  only  significant concentration of credit at December 31,
          2002,  occurred  in  real  estate  loans,  which totaled approximately
          $53,702,000. While real estate loans accounted for 57 percent of total
          loans,  these  loans  were  primarily  residential  mortgage  loans,
          commercial loans secured by commercial properties, and consumer loans.
          A  minor  portion  of  these  loans  were  for  construction,  land
          acquisition,  and  development.  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  $2,772,000  at  December  31,  2002.

          At December 31, 2002 and 2001, loans that were specifically classified
          as  impaired  were  insignificant  in  relation  to  the  Bank's  loan
          portfolio.

Note 4.   Premises  and  Equipment

          A  summary of premises and equipment at December 31, 2002 and 2001, is
          as  follows:

                                                      2002         2001
                                                   -----------  -----------
             Land                                  $  310,664   $  310,664
             Buildings and leasehold improvements   2,091,289    2,091,289
             Furniture, fixtures and equipment      1,226,021    1,222,850
             Vehicles                                  44,207       70,432
                                                   -----------  -----------
                                                    3,672,181    3,695,235
             Accumulated depreciation                (742,121)    (665,320)
                                                   -----------  -----------

                                                   $2,930,060   $3,029,915
                                                   ===========  ===========


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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001


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

Note 5.   Note Payable

          The  note  payable  requires  quarterly interest payments at the prime
          interest  rate  less  one-half  percent.  Principal  is due in full on
          September  20,  2004. The note is secured by 600,000 shares of Gateway
          Bank  &  Trust  common  stock.


Note 6.   Federal Home Loan Bank Advances

          At  December  31,  2002  and 2001, Federal Home Loan Bank advances are
          secured  by  single-family  first  mortgage  loans  and consist of the
          following:

<TABLE>
<CAPTION>
                                                              2002        2001
                                                           ----------  ----------
<S>                                                        <C>         <C>
             Advances requiring monthly interest payments
               at 5.72%, maturing January 13, 2003         $1,000,000  $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           -
             Advances requiring monthly interest payments
               at 6.09%, maturing September 15, 2010        1,000,000   1,000,000
                                                           ----------  ----------

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

Note 7.   Other Operating Expenses

          Other  operating  expenses  for  the years ended December 31, 2002 and
          2001,  consist  of  the  following:

<TABLE>
<CAPTION>
                                                  2002        2001
                                               ----------  ----------
<S>                                            <C>         <C>

             Advertising and marketing         $   45,536  $   63,145
             Data processing                      317,653     275,206
             Furniture and equipment expense      184,873     207,232
             Postage, freight, and express         89,563      69,886
             Printing and supplies                162,360     152,248
             Professional and regulatory fees     196,434     146,401
             Other                                387,170     351,165
                                               ----------  ----------

               Total other operating expenses  $1,383,589  $1,265,283
                                               ==========  ==========
</TABLE>


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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001


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

Note 8.   Income Taxes

          The  provision  for  income  taxes  in  the consolidated statements of
          income  for  the  years ended December 31, 2002 and 2001, includes the
          following:

                                                  2002       2001
                                               ----------  ---------

             Current tax expense:
               Federal                         $ 729,700   $335,000
               State                              66,100          -
             Deferred income taxes (benefit):
               Federal                          (149,712)   (18,630)
             State                                (8,359)    (5,784)
                                               ----------  ---------

             Provision for income taxes        $ 637,729   $310,586
                                               ==========  =========

          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>
                                                                   2002      2001
                                                                ---------  ---------
<S>                                                             <C>        <C>

             Expected tax at statutory rates                    $643,000   $326,000
             Increase (decrease) resulting from tax effect of:
               Tax-exempt interest on municipal securities       (31,000)    (5,100)
               State income taxes, net of federal benefit         38,100          -
               Other                                             (12,371)   (10,314)
                                                                ---------  ---------

             Provision for income taxes                         $637,729   $310,586
                                                                =========  =========
</TABLE>

          The  components  of  the  Company's  deferred  income  tax  assets and
          liabilities  at  December  31,  2002  and  2001,  are  as  follows:

<TABLE>
<CAPTION>
                                                    2002        2001
                                                 ----------  ----------
<S>                                              <C>         <C>
             Deferred tax assets:
               Allowance for loan losses         $ 386,000   $ 274,000
               Stock options compensation           88,800      31,959
               Other                                41,264      22,196
                                                 ----------  ----------

                 Total deferred tax assets         516,064     328,155
                                                 ----------  ----------

             Deferred tax liabilities:
               Accumulated depreciation           (167,162)   (138,208)
               Unrealized gains on securities     (190,111)    (52,551)
                                                 ----------  ----------

                 Total deferred tax liabilities   (357,273)   (190,759)
                                                 ----------  ----------

             Net deferred tax assets             $ 158,791   $ 137,396
                                                 ==========  ==========
</TABLE>


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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001


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

Note 9.   Time Deposits

          The  aggregate amount of time deposits in denominations of $100,000 or
          more  was  approximately $20,655,000 at December 31, 2002. At December
          31,  2002,  the  scheduled maturities of time deposits are as follows:

                             2003              $  29,909,891
                             2004 - 2005          32,540,002
                             2006 - 2010             832,912
                                               -------------

                                               $  63,282,805
                                               =============

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

          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 various commitments
          to  extend  credit  and  standby  letters of credit. These instruments
          expose the Bank to varying degrees of credit and interest rate risk in
          excess  of the amount recognized in the accompanying balance sheet. To
          manage  this  risk,  the  Bank  uses  the same management policies and
          procedures for financial instruments with off-balance-sheet risk as it
          does  for financial instruments whose risk is reflected on the balance
          sheet.

          The  credit  risk  of  all  financial instruments varies based on many
          factors,  including  the  value  of collateral held and other security
          arrangements.  To  mitigate credit risk, the Bank generally determines
          the need for specific covenant, guarantee, and collateral requirements
          on a case-by-case basis, depending on the customer's creditworthiness.
          The  amount  and  type of collateral held to reduce credit risk varies
          but  may  include  real  estate,  machinery, equipment, inventory, and
          accounts  receivable  as  well  as cash on deposit, stocks, bonds, and
          other  marketable  securities  that  are  generally held in the Bank's
          possession. This collateral is valued and inspected on a regular basis
          to  ensure  both  its  existence  and  adequacy.  The  Bank  requests
          additional  collateral  when  appropriate.

          At  December 31, 2002, commitments under standby letters of credit and
          undisbursed loan commitments aggregated $13,677,000. 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.

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.


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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001


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

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
          $102,000  in  2002  and  $32,000  in  2001.

          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,  2002,  the liability was approximately
          $52,000.  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, 2002,
          the cash surrender value of these policies was approximately $531,000.
          This  amount  is  classified  as  other  assets  in  the  accompanying
          consolidated  balance  sheets.


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,  2002  and  2001,  is  as  follows:


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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001


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

Note 14.  Stock Option Plan (continued)

<TABLE>
<CAPTION>
                                                                  Weighted
                                                                  Average
                                                                   Number    Exercise
                                                                 of Shares     Price
                                                                 ----------  ---------
<S>                                                              <C>         <C>
             Unexercised options outstanding, December 31, 2000    166,850   $   12.00

               Stock options granted                                14,000       13.00

               Stock options forfeited                             (10,840)      12.00
                                                                 ----------

             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
                                                                 ==========
</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, 2002, the number of options exercisable
          is 94,580. 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  6.43  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  $149,409  in  2002  and  $84,190  in  2001.

          The  weighted-average  fair value of stock options granted in 2001 was
          $3.20  per share. This amount was estimated on the date of grant using
          the  Black  Scholes  option-pricing  model  under  the  following
          assumptions:

               Risk-free interest rate                  3.37%
               Expected life                             7.5  years
               Expected volatility                        10%
               Expected dividends                      $   -


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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001


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

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, 2002 and
          2001,  is  as  follows:

<TABLE>
<CAPTION>
                                                                    Tax
                                                    Before-Tax   (Expense)   Net of Tax
                                                      Amount      Benefit      Amount
                                                    -----------  ----------  -----------
<S>                                                 <C>          <C>         <C>
            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
                                                    ===========  ==========  ===========

            Year ended December 31, 2001:
              Unrealized holding gains and losses
                arising during the period           $   368,531  $(140,042)  $   228,489

              Less reclassification adjustment for
                gains realized in net income             46,829    (17,795)       29,034
                                                    -----------  ----------  -----------

                                                    $   321,702  $(122,247)  $   199,455
                                                    ===========  ==========  ===========
</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, 2002, that the Bank meets all capital
          adequacy  requirements  to  which  it  is  subject.


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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001


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

Note 16.  Regulatory Matters (continued)

          As of December 31, 2002, 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, 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%

At December 31, 2001:
  Total capital
    (to risk-weighted assets)   10,350  11.65%       7,110      8.00%       8,887      10.00%
  Tier I capital
    (to risk-weighted assets)    9,354  10.53%       3,555      4.00%       5,332       6.00%
  Tier I capital
    (to average assets)          9,354   8.14%       4,595      4.00%       5,744       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 32
<PAGE>
                    GATEWAY BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001


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

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.

          Securities  sold  under  agreements  to  repurchase:

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

          Note payable 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 33
<PAGE>
                    GATEWAY BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001


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

Note 17.  Fair  Value  of  Financial  Instruments  (continued)

          The  carrying  amount and estimated fair value of the Bank's financial
          instruments  at  December  31,  2002  and  2001,  are  as  follows (in
          thousands):

<TABLE>
<CAPTION>
                                               2002                    2001
                                       ----------------------  ----------------------
                                       Carrying    Estimated   Carrying    Estimated
                                        Amount    Fair Value    Amount    Fair Value
                                       ---------  -----------  ---------  -----------
<S>                                    <C>        <C>          <C>        <C>
Assets:
  Cash and due from banks              $   7,049  $     7,049  $   4,283  $     4,283
  Federal funds sold                       7,450        7,450     10,680       10,680
  Securities                              29,374       29,374     27,496       27,496
  Federal Home Loan Bank stock               260          260        260          260
  Loans, net                              92,606       92,653     78,620       76,171

Liabilities:
  Noninterest-bearing demand deposits      7,816        7,816     11,710       11,710
  NOW accounts                            37,271       37,271     23,556       23,556
  Savings and money market accounts       13,621       13,621     18,016       18,016
  Time deposits                           63,283       64,240     59,827       60,807
  Securities sold under agreements
    to repurchase                          3,302        3,302          -            -
  Note payable                               800          800      1,000        1,000
  Federal Home Loan Bank advances          4,000        4,000      2,000        2,000
</TABLE>

Note 18.  Lease Obligations

          The  Bank  leases  the  ground on which its main office is built. Rent
          expenses  were  $24,994 in 2002 and $25,005 in 2001. 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:


                    2003        $ 25,067
                    2004          25,067
                    2005          25,067
                    2006          25,067
                    2007          25,067
                    Thereafter   200,536
                                --------

                                $325,871
                                ========


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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001


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

Note 19.  Condensed Parent Information

<TABLE>
<CAPTION>
                        BALANCE SHEETS
----------------------------------------------------------

                                                                2002         2001
                                                            ------------  -----------
<S>                                                         <C>           <C>

ASSETS
  Cash                                                      $   255,118   $  274,625
  Investment in subsidiary                                   10,840,346    9,440,324
  Other assets                                                  113,355       86,855
                                                            ------------  -----------

    Total assets                                            $11,208,819   $9,801,804
                                                            ============  ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
  Note payable                                              $   800,000   $1,000,000
  Other liabilities                                              12,519       66,567
                                                            ------------  -----------
    Total liabilities                                           812,519    1,066,567
  Stockholders' equity                                       10,396,300    8,735,237
                                                            ------------  -----------

    Total liabilities and stockholders' equity              $11,208,819   $9,801,804
                                                            ============  ===========

                  STATEMENTS OF INCOME
----------------------------------------------------------

INCOME
  Interest income                                           $     4,776   $   12,184

EXPENSES
  Interest expense                                               42,347       62,132
  Other operating expenses                                      176,789       75,586
                                                            ------------  -----------

Loss before equity in undistributed earnings of subsidiary     (214,360)    (125,534)

Equity in undistributed earnings of subsidiary                1,375,583      746,959

Income tax benefits                                              93,471       27,855
                                                            ------------  -----------

      Net income                                            $ 1,254,694   $  649,280
                                                            ============  ===========

                  STATEMENTS OF CASH FLOWS
----------------------------------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                                $ 1,254,694   $  649,280
  Adjustments to reconcile net income to net cash
  used in operating activities:
    Equity in undistributed income of subsidiary             (1,375,583)    (746,959)
    Other                                                        68,862       62,374
                                                            ------------  -----------

      Net cash used in operating activities                     (52,027)     (35,305)
                                                            ------------  -----------

CASH FLOWS FROM INVESTING ACTIVITIES
  Dividends from subsidiary                                     200,000       90,000
                                                            ------------  -----------

CASH FLOWS FROM FINANCING ACTIVITIES
  Principal payments on note payable                           (200,000)           -
  Proceeds from stock options exercised                          32,520            -
                                                            ------------  -----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS            (19,507)      54,695

CASH AND CASH EQUIVALENTS, beginning of year                    274,625      219,930
                                                            ------------  -----------

CASH AND CASH EQUIVALENTS, end of year                      $   255,118   $  274,625
                                                            ============  ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
  Cash paid (received) during the year for:
   Interest on notes payable                                $    40,305   $   68,367
   Income taxes                                                 (17,567)     (37,329)
                                                            ============  ===========
</TABLE>


                                    Page 35
<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
                                  -------------------------------
                                        2002            2001
                                        ----            ----
                                    High    Low     High    Low
                                   ------  ------  ------  ------
<S>                                <C>     <C>     <C>     <C>
        First Quarter              $13.00  $12.00  $12.50  $12.50
        Second Quarter              13.00   13.00   13.00   10.00
        Third Quarter               12.00   12.00   13.00   13.00
        Fourth Quarter              14.00   13.43   13.00   13.00
</TABLE>


The  Company's common stock was held by approximately 647 shareholders of record
at  December  31,  2002.

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  2002  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 36
<PAGE>